Exactly How Do You Hide $73 Billion In Fraudulent Trades?

from the bet-big,-lose-big dept

At the end of last week, the latest banking scandal started hitting the wires as news broke of a low level trader for the French bank Societe Generale was somehow able to lose the bank $7.2 billion by sneaking around various control and security systems to make a series of complex bets, well beyond what he should have been allowed to do. Many people are comparing it to the case of Nick Leeson, who brought down Barings bank over a decade ago — though, with Leeson, it only took a little over a $1 billion. And, over the weekend, the details got worse. That $7.2 billion loss came on bets up to $73 billion. It certainly raises plenty of questions about the controls that are in place. No matter how sneaky you are, you would think that $73 billion would be pretty hard to trade without anyone noticing. Apparently not. The trader in this case, Jerome Kerviel, supposedly had a detailed understanding of the security systems thanks to an earlier job at the bank, that involved monitoring the trading systems and then used other people’s accounts and falsified documents to hide his tracks. Even so, you would think that someone would have taken notice of $73 billion moving around. Societe Generale claims that, unlike Barings, it can easily survive this fraud and will even turn a profit. Of course, at the same time, it also announced it needs to raise $8 billion — and given the size of the loss, that certainly makes it sound like the bank needs to replace that money pretty quickly.

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Comments on “Exactly How Do You Hide $73 Billion In Fraudulent Trades?”

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Anthony says:

Re: Re:

The credit card company was able to detect the illegitimate charge because certain flags were triggered by the bank’s computer. A rather simplistic example, after a card is stolen a thief might attempt to get gas for just a few dollars to make sure the card has not been canceled right before he buys his girlfriend a $3000 necklace at the jewelry store.

By working in the backroom trading facility before he started trading Jérôme knew those rules and was able to get around them.

Joe Smith says:

Re: I have trouble getting excited over this

I take issue with the inferrence that these were “bets” – when I saw that in your description I thought this guy was visiting Monte Carlo with $7.2 billion.

He was trading derivatives and “bets” is not a bad or unfair characterization.

When you go to Monte Carlo the rules of the game are known and you can calculate your odds. Its seems pretty clear that in the current meltdown there were lots of Wall Street types who did not did not understand the rules and could not calculate the odds. It brings to mind the old advice: if you sit down at a poker table and can’t spot the mark – you’re the mark.

Jack Sombra says:

“Imagine everything had worked out perfectly, and he made his company BILLIONS of dollars. As a hot-shot banker, you gotta believe that he thought that might propel him up the corporate ladder… And what a reputation he’d have.”
If you read the article he actually he did make a billion or so, but because he could not explain it to the bank he had try to lose it, problem was he over did it and went from about a billion plus in the black to a billion plus in the red

Anonymous Coward says:

The guy never tried to lose money. He placed bets on the industry averages, that was his department. When he placed a bet on the upside, he was supposed to place a offsetting bet on the downside. Through numbers, the bank would make a small profit. He made the bets, but was not hedging the bet with the appropriate offsetting bet (he just made those up by forging documents) and recently the bank was liable for up to $40 or so billion.

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