Société Générale, one of the largest banks in Europe, was thrown into turmoil Thursday after it revealed that a rogue employee had executed a series of “elaborate, fictitious transactions” that cost the company more than $7 billion, the biggest loss ever recorded in the financial industry by a single trader.
Daniel Bouton, the Société Générale chairman, said the employee, later identified by other bank employees as Jérôme Kerviel, had confessed to the €4.9 billion fraud, although he did not appear to have profited personally from the trades. The bank has started legal proceedings against the employee, whom the governor of the Bank of France, Christian Noyer, said was currently “on the run.”
Later, a woman identified as the trader’s lawyer, Elisabeth Meyer, said on French television that he was “not fleeing” and was “available for judicial authorities.” She did not say where he was.
Sounds like the bank needs better internal controls—those pesky safeguards stressed by the Sarbanes-Oxley Act.
The trick is the trader in question spent several years as part of the internal controls, and thus was able to circumvent them more easily. It is also suggested that he did so at the conivance of his superious.
SarbOx is domestic regulation that can only apply to US operations, not French. “Pesky” is hardly an accurate modifier and “safeguards” is just plain wrong. The current status of banking regulation in the US is increasingly Byzantine and akin to layering roof upon roof. It’s a conflagration waiting to happen.
This sounds like the same thing that happened to Sumitomo
“The current status of banking regulation in the US is increasingly Byzantine and akin to layering roof upon roof” —Nikolaus [#3]
U.S. banking regulation has worked far better over the past 15 years than it did for decades before. Bank failures reached post-1930s record levels year after year during the 1980s. Since 1992 they have plummeted. Bank capital is well above the levels of the 1970s and 1980s. Bank failures have plummeted. The FDIC’s bank insurance fund, which in 1991 was $7 billion in the red, now has reserves of $52 billion.
Yes, the regulatory structure is byzantine. Give special interests and anti-government folk much of the credit for that; reform is not their priority.
As for Sarbanes-Oxley, tell me what exactly is wrong with having a publicly held corporation’s CEO and CFO (1) certify that the firm’s financial statements fairly present the firm’s financial condition, and (2) periodically evaluate and report on the effectiveness of the firm’s internal controls?
http://new.kendallharmon.net/wp-content/uploads/index.php/t19/article/9212/#171200
Irenaeus, thanks for your cogent analysis of Sarbanes-Oxley. In recent years, millions of folks have been forced into 401(k)s, which basically makes them red meat for the investment crowd….multiple studies have demonstrated that they have LOST on stocks and investments. Sarbanes-Oxley is a tiny finger in the dyke….and sadly, tragically, so many are losing their lifetime savings to slick Wall Street manipulators. Wall Street is NOT safe for middle-class workers, they were sheep led to slaughter. And the blood is still flowing….
I rather think the poor fool was simply trying to fill his car up with gas – did it, in fact, and then had to pay for it. LM