What is Jerome Kerviel?
Before he left Société Générale, Jerome Kerviel worked as a junior futures trader for the company. A series of illegal and dishonest deals he made between 2006 and early 2008 caused the company to lose more than €4.9 billion in assets. Managers of the company quickly closed out the open positions (most of which were specialist stock arbitrage trades) when they found out that Kerviel had made trades worth tens of billions of euros without permission. They did this to limit the scope of the fraud. A falling market at the time of sale meant many deals ended with significant losses.
How to Understand Jerome Kerviel
Jerome Kerviel was born on January 11, 1977, and grew up in Brittany, France, in Pont L’Abby. In 1999, Kerviel got his bachelor’s degree from the University of Nantes. The following year, he got his master’s degree in finance from the University of Lyon.
In the summer of 2000, when he was 23, Jerome Kerviel started working for Société Générale. His first job at the company complied. In 2005, he moved up and became a junior trader working with swaps. Kerviel’s job was to make money off price differences between equity derivatives and the market price of the stocks on which the derivatives were built.
How to Understand Derivatives
Derivatives are ways to trade that get their value from something else, like the price of corn, a stock, or an index. Differentials come in many forms, including futures, options, and swaps.
When trading derivatives, you usually pair a long position with a similar short one to lower your risk. For example, a trader who bought Euro stock market futures hoping the market would go up would usually counter this bet by shorting U.S. stock futures to make money if the market went down since stocks in Europe and the U.S. tend to move similarly. Kerviel started betting on only one side of these games.
Unauthorized Trades and Kerviel
Kerviel had worked in Société Générale’s back office for several years and knew how the company approved and regulated trade among its dealers. In late 2006 and early 2008, he used this information to make up the opposite position to his one-sided bets by making fake trades in the system’s computers and logs. By doing this, the bank’s control systems missed the trades.
At first, these trades made money. Kerviel was afraid that the bank would find out about the fake transactions because he was having so much success so quickly. To hide what he was doing, he started making trades that were purposely losing so that he would lose money to cancel out his early wins.
In January 2008, Société Générale managers found trading going on without permission and took steps to close down the accounts Kerviel set up. Many people thought Kerviel had lost €4.9 billion when everything was over. Kerviel says his bosses knew about his shady trades but chose to ignore them because he was making money for the bank. In 2016, an appeals court in Versailles ruled in Kerviel’s favor, saying that it wasn’t “occasional negligence” that let him get away with his crimes but “managerial choices.”
Unique Things to Think About
Different people have different ideas about how good Kerviel was as a businessman and a student. People who taught at the University of Lyon, where he went to school, say that he was just like any other student. A past governor of the Bank of France called Kerviel a “computer genius,” but his coworkers say he wasn’t one of their best traders.
While Kerviel may not have personally made money from his risky trading, he is now part of the notorious group of traders who have cost their companies billions of dollars by dealing without permission and in dangerous ways.
Kerviel walked from Paris to Rome to meet the Pope while his case was being looked into. They talked about the flaws of capitalism together.
In 2010, a French court found Kerviel guilty of breach of trust and other charges. He got at least three years in jail and had to pay €4.9 billion in reparations. Before his release, he spent five months in jail in 2014. He also got a more minor fine in 2016: €1 million.
Questions and Answers about Jerome Kerviel
What Does “Rogue Trader” Really Mean?
A rogue trader trades on behalf of others, like customers or a business, but does so without thinking and often breaks company rules and risk management procedures. What a lousy trader does is usually based on speculation and involves significant amounts of money and high-risk securities.
How much does Jerome Kerviel make?
There is no money coming in or going out for Jerome Kerviel. He owed €4.9 billion after his term, but in 2016, that number was lowered to €1 million. Because of this, he has a negative net worth of about 1 million euros.
What does Jerome Kerviel do these days?
Currently, Jerome Kerviel works at Lemaire Consultants as an IT expert.
Can I still do business with Société Générale?
Yes, Société Générale is still in business. It is a worldwide banking company with places of business worldwide. Its main office is in Paris. Along with private banking, the company does sales, trading, and corporate banking.
In Short
When Jerome Kerviel worked as a trader for the French investment bank Société Générale, he used swaps to make bad deals. The bank lost €4.9 billion because of his deals. He got three years in jail but only spent five months there. He also had to pay fines that added to €4.9 billion, which were later lowered to €1 million.
Conclusion
- Société Générale found Jerome Kerviel, a French rogue dealer, guilty of making false and illegal deals.
- Kerviel made fake deals in the system’s computers and logs to balance his one-sided bets with the opposite position, which didn’t exist.
- To hide how successful he was, he started making trades that were not going to win on purpose so that he would lose money to cancel out his early gains.
- Kerviel’s deals caused the company to lose €4.9 billion in assets.
- Kerviel went to jail for five months and had to pay two huge fines: €4.9 billion at first, then €1 million.
