The Crime Book

124

HE PUT IN PERIL

THE EXISTENCE

OF THE BANK

JÉRÔME KERVIEL, 2007–08

F

rench trader Jérôme

Kerviel’s career in white-

collar crime was relatively

short-lived, lasting just over a year.

In that brief period, the 31-year-old

caused one of the leading French

banks, Société Générale, to

lose €4.9 billion (£4.4 billion). But

who was really to blame?

The crime

Kerviel joined Société Générale’s

compliance department in 2000

and became a junior trader in 2005.

He started to make unauthorized

transactions late in 2006. His

modus operandi was to make only

small, occasional transactions, but

over time these became larger and

more regular, concealed by false

hedge trading. Kerviel always

closed his trades within three days,

before the bank’s control measures

kicked in. He did not personally

profit from these transactions.

In January 2008, Société

Générale discovered that Kerviel

had been making unauthorized

deals. They asserted that Kerviel,

anticipating a decline in market

prices, made eight unauthorized

trades in derivatives in December

2007 and January 2008 totalling

€4.9 billion (£4.4 billion) – more

than the total sum of the bank’s

stock and net earnings.

Kerviel was charged with

breach of trust, forgery, and

unsanctioned use of the bank’s

computer systems. His trial began

on 8 June 2010.

During the proceedings, Kerviel

admitted to entering sham trades

and falsifying documents to

obscure his actions, but claimed

that his superiors at Société

Générale had secretly condoned his

behaviour because it yielded

significant profits. Kerviel’s lawyers

claimed that he earned the bank

€1.4 billion (£1.27 billion) in the last

quarter of 2007 alone.

IN CONTEXT

LOCATION

Paris, France

THEME

Rogue trader

BEFORE

1992–95 The illegal trades of

Nick Leeson, a futures trader

based in Singapore, bring

down Barings, Britain’s oldest

merchant bank. Leeson is

sentenced to six and a half

years in prison.

2004–06 Jordan Belfort,

reputedly the real-life Wolf of

Wall Street, serves 22 months

in jail for securities fraud.

AFTER

2011 The unauthorized trading

of UBS Global trader Kweku

Adoboli costs the Swiss bank

£1.5 billion. In 2012, Adoboli is

convicted of fraud and jailed

for seven years.

There was a tremendous

culture ... to take big risks

in order to make the

maximum profit.

Bradley D. Simon

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125

Jérôme Kerviel and his lawyer David

Koubbi arrive at the Paris appeal court

in 2012. Kerviel lost this appeal, but a

subsequent appeal in 2016 reduced the

fine to €1 million (£840,000).

See also: Charles Ponzi 102–07 ■ Bernie Madoff 116–21

WHITE COLLAR CRIMES

On 5 October 2010, Judge Pauthe

sentenced Kerviel to three years

in prison and ordered him to

pay Société Générale €4.9 billion

(£4.4 billion) in compensation.

Alternative opinions

Sceptics of the official narrative,

including Kerviel’s former work

colleagues, have pointed out that

the sheer scale of this unauthorized

trading could not have escaped the

bank’s attention for so long. They

also said that completing such

large trades within three days

would have been impossible.

Furthermore, they argued, Kerviel’s

position in the company made it

unlikely that he had worked alone.

Wrongful dismissal

In 2014, France’s Court of Cassation

reduced the repayment amount on

the basis that Judge Pauthe’s

decision did not consider the role of

the bank’s own inadequate risk-

management procedures. Kerviel

was freed that same year.

However, Kerviel was

determined to carry on his fight

against the bank. In June 2016, he

convinced a French labour tribunal

that the termination of his

employment from the bank had

been unethical. In a strange

paradox, the labour board ordered

the bank to pay him €300,000

(£250,000) in compensation,

including recompense for unused

vacation and his 2007 performance

bonus. In September 2016, Kerviel

appeared in court to appeal his

€4.9 billion (£4.4 billion) fine. He

won the case and the fine was

reduced to €1 million (£840,000).

Unfairly or not, Kerviel is seen as

a martyr by some: a businessman

pressured to compete unethically

by a corrupt system that sacrificed

him at the first sign of trouble.

Regardless of the level of the bank’s

complicity, Kerviel has taken the

opportunity for self-aggrandizement

• in 2014 he made a well publicized
  pilgrimage to Rome to discuss the
  “tyranny of the markets” with
  Pope Francis. ■

The psychology of lying

In his book The Honest Truth

About Dishonesty, Dr Dan

Ariely, a cognitive psychologist

and behavioural economist at

Duke University, North Carolina,

proposes that the likelihood of

an individual being dishonest

increases when they: (1) can

rationalize the lie, (2) have a

conflict of interest, (3) have lied

about the matter in the past,

(4) observe others behaving

dishonestly, (5) belong to a

culture or sub-culture where

dishonesty is normalized,

(6) know others will benefit from

their deceit, (7) are highly

creative and imaginative, and

(8) are tired or stressed.

In the case of Jérôme Kerviel,

the first six factors certainly

apply, while the last two are

possible. Brain imaging has

shown that lying and repeated

deception reduces activity in the

amygdala, the area of the brain

where emotional responses are

processed. This reduction can

limit the feelings of shame or

guilt that are often associated

with lying, making it easier to

continue lying.

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