Accused rogue trader Kerviel says he didn’t invent his betting tricks

Kerviel goes on offensive on trial’s second day

PARIS — The former trader accused of nearly toppling France’s Societe Generale argued in court Wednesday that he didn’t invent the tricks that allowed him to gamble tens of billions of euros (dollars) of the bank’s money, insisting that such practices were tolerated by management.

Jerome Kerviel used his second day in court to try to turn the tables on his former employer, portraying himself as a pawn and casting his bank as an anything-goes place where he was encouraged to take massive risks until the scandal broke in January 2008. Societe Generale strongly denies his claims.

The 33-year-old former futures trader eventually bet euro50 billion ($73 billion at the time), even more than the bank’s market value.

One of Kerviel’s former bosses, visibly riled by the defense strategy, called him a liar who has never apologized for putting the bank at risk.

“Jerome Kerviel is not Robin Hood,” Jean-Pierre Mustier, the bank’s former head of corporate and investment banking, testified. “Jerome Kerviel is the trader who lost the largest amount of money in the world.”

Kerviel, the son of a hairdresser and a metalworker, has become an anti-hero in France for humiliating one of the country’s most powerful financial institutions and revealing the weakness of its risk controls. Internationally, his case is fodder for those seeking greater regulations in the industry.

The scandal cost the bank euro5 billion (more than $7 billion at the time) in losses once Societe Generale SA unwound Kerviel’s positions in January 2008. It remains the largest-ever alleged fraud by a single trader, though it has since been dwarfed by other crises in the financial world, from the fall of Lehman Brothers to Bernard L. Madoff’s multibillion-dollar Ponzi scheme.

On Wednesday, judges probed how Kerviel could have overstepped his authority so completely as to wind up betting tens of billions of euros (dollars), and how the bank failed to stop him sooner.

While accusing the bank of encouraging him, Kerviel — relaxed and tieless — nonetheless admitted mistakes of his own.

“I recognize that it was completely idiotic,” he told the court, referring to his gambles in general.

When the head judge asked if he was mandated to bet such sums, Kerviel responded “Probably not.” Then, somewhat sheepishly, he added: “Certainly not.”

But Kerviel insisted that his superiors accepted his tricks — such as covering up his huge positions with fictional trades that appeared to balance them out.

“I’m not the one who invented them, others did it too,” he said, without naming names. He added, “These practices were known and recognized by management.”

The bank strongly denies that Kerviel’s bosses knew what he was doing.

“The hierarchy didn’t know,” said Mustier, Kerviel’s former boss, who left the bank amid an unrelated insider trading probe. “The hierarchy is me … Mr. Kerviel is lying, like he lied to me all the time.”

Questions remain about how managers failed to follow up on 74 different alarms about Kerviel’s activities — bank official Claire Dumas said the warnings went unnoticed because they were sent to many different departments.

The accused rogue trader faces a possible five years in prison as well as a euro375,000 ($450,000) fine if convicted on charges of forgery, breach of trust and unauthorized computer use.

The bank, a civil party, is also asking for nearly euro5 billion in damages, though Kerviel could never pay that amount.

Kerviel is not accused profiting personally from his huge trades. His motive — beyond the hope of a few hundred thousand euros (dollars) bonus — remains the great mystery of the case. The ex-trader says he only wanted to make money for the bank.

Jean Veil, lawyer for Societe Generale, said Kerviel’s explanations were “muddled.”

“He keeps saying he did it as a gift to the bank,” Veil said. “But the thing with gifts is that you eventually have to give them. He never did.”