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French Broker Interrogated

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By PIERRE-ANTOINE SOUCHARD, The Associated Press

Published: January 27, 2008

PARIS - A rogue trader who cost France's Societe Generale bank more than $7 billion by making bad stock market bets was taken into custody Saturday for questioning, judicial officials said.
Financial police in Paris were to question Jerome Kerviel as part of a probe into Societe Generale's announcement Thursday that the 31-year-old trader had put tens of billions of dollars at risk in one of history's biggest frauds, judicial officials said. They spoke on condition of anonymity because the investigation is ongoing.
Skeptics from Kerviel's neighbors to France's prime minister have questioned whether a single futures trader could have managed such large sums. Adding to the mystery, the bank said Kerviel may not have made any personal gain from his unauthorized trades.

The bank said it discovered the fraud last weekend and unwound the trader's losing bets starting Monday, when world markets tumbled. Some analysts have questioned whether Societe Generale exacerbated the fall and indirectly led to the U.S. Federal Reserve's subsequent decision to cut rates.
Judicial officials also confirmed police searched Kerviel's apartment in the Paris suburb of Neuilly-sur-Seine. They said police also went Friday night to the bank's headquarters, where they were provided with documents relating to the investigation, officials said.

Paris prosecutors are conducting a preliminary investigation based on three complaints: one by the bank accusing Kerviel of fraud, and two by small shareholders.

In an interview published Saturday, Societe Generale's chief executive, Daniel Bouton, insisted the bank's actions after discovering the fraud did not fuel turmoil on world markets.

"It's absurd!" Bouton said of the suggestion, in an interview with Le Figaro daily. "Anyone could calculate our contribution to the market in recent days."

Bouton was quoted as saying the bank, in closing the trader's unauthorized positions, respected market rules that forbid any player from intervening with sums worth more than 10 percent of a given market. The bank says that is why it took three days to close the positions.

The bank maintains it was the biggest loser in the case, because of the timing of the discovery.

Kerviel had been investing the bank's money by hedging on European equity market indices. That means he made bets on how the markets would perform at a future date.

Bouton said the trader had been betting throughout 2007 that markets would fall. "He was therefore winning, virtually," he said.

The bank, however, says he had overstepped his authority and was wagering more money than he should have.

So at the beginning of January, Bouton said, the trader voluntarily created losing positions, to neutralize his earlier gains and cover his tracks.

Markets, however, dropped this month, and quickly. "This sad affair veered into a Greek tragedy: His virtual losing position became huge," Bouton was quoted as saying.

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