2. SocieteGeneraleThe Company INTRODUCTION Global Presence with over 20 million customers worldwide Founded in 1864 Core Businesses: Corporate + Investment Banking Retail Banking Global Investment Services Over 130000 employees 2
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4. 1. Name: Jerome Kerviel Age : 31 years 2008 FLASHBACK: ROGUE TRADER Education: Masters of Finance, University of Lyon Starting Position: Risk Management Office “The Mine”, Back-office systems & security systems Ending Position: Lower-level trader, Delta One- Trade index futures as a way to hedge company risk and make small profits Co-workers’ impressions: “quiet and unassuming trader”, “unimpressive education background”, “motive to impress his seniors” 4
5. 2. Job Role: Purchase European stock index futures And sell others as a hedge. Job Goal: Create small, low-risk profit stream based on Large volume. 2008 FLASHBACK: ROGUE TRADER 3. What Kerviel Actually Did: Bypassed all internal controls and made high risk unauthorized trades for a total of $87 billion in trades. He bypassed controls by creating fictitious trades in “trading book” to offset his trades. 5
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7. “A cocktail of IT failures” System Vulnerabilities IT controls including: General Controls Application Controls Security Policies KEY CONCEPTS 7
8. System Weaknesses CONTROL FAILURE Management | Organization | Technology Unauthorized Access Internal Control Breach Managers’ failure to identify key errors 8
9. Responsibility for losses “THE BLAME GAME” Kerviel’s ethical misconduct Failure of internal controls Management and Supervisors IT Audit Controls 9
10. Fraud Prevention Techniques PROACTIVE PREVENTION Randomize internal checks Track changes in trading books Effective Supervision and Reviews Mandatory Vacation Days 10
14. Fraud Reaction Techniques REACTIVE PREVENTION Crucial to appropriately act upon fraud within company Conduct strict management reviews Conduct audit on internal controls and responsible management 12
16. Allen, P. (2008, January 28). Jerome Kerviel behind SocieteGenerale fraud. Retrieved July 4, 2011, from The Telegraph: http://www.telegraph.co.uk/finance/newsbysector/banksandfinance/4667707/Jerome-Kerviel-behind-Societe-Generale-fraud.html Gauthier-Villars, D. (2010, October 6). Rogue French Trader Sentenced for 3 years. Retrieved July 4, 2011, from Wall Street Journal: http://online.wsj.com/article/SB10001424052748703726404575533392217262322.html Hurst, A., & Leveque, T. (2008). "SocGen Discloses Details". Retrieved July 4, 2011, from Market Watch: http://www.marketwatch.com/story/societe-generale-traders-named-as-jerome-kerviel-report Parase, N. (2008, January 25). French Bank Trader Says Rogue Trader Lost $7 Billion. The New York Times . BIBLIOGRAPHY 14
17. That’s him! APPLAUSE….. It’s good we found the guy who lost 5 billion! Need a little chip in the stock market? might need 180,000 years of life 15
