Investigation at SocGen 'to take months'

Forensic accountants predicted months of investigation into what went wrong at Société Générale, where a rogue trader is thought to have cost the bank billions.

Rival investment banking executives also said it was 'inconceivable' that rogue trader Jérôme Kerviel built up positions in excess of market value, without triggering large and obvious margin calls which involve the bank putting cash up as collateral.

People briefed on the fraud confirm that the bank received and paid large margin calls as a result of the falling value of the futures position the trader had accumulated, the FT reported.

Kerviel is also alleged to have constructed fake hedging contracts which were then cancelled, leading to cash deficits.

An internal audit is currently underway at the bank, the paper said this morning.

Meanwhile forensic experts preducted a long investigation. Simon Bevan, head of the fraud team at BDO Stoy Hayward, said: 'This is months of investigation. Look at Barings – there’s no way you can do it in days. You interview people, go through the accounting records, the electronic records, the e-mails, the phone records. Then you look at their background, you check their holiday time – did trades occur then, because you know there is collusion if so?'

'Even if he was able to circumvent the normal controls, the deteriorating cash position should have served as a warning sign,' one bank executive said.

But Kerviel's lawyers hit back accusing the bank of creating a 'smokescreen' to divert attention from other losses.

According to Kerviel's lawyers, Elisabeth Meyer and Christian Charrière-Bournazel, SocGen wanted to 'raise a smokescreen that would distract the public's attention from far more substantial losses that it had made in recent months, notably in the unbelievable subprime affair.'

They also insisted their client 'did not commit any dishonest act, nor embezzle a single cent, and he in no way benefited from the bank's funds'.

The bank revealed that the trader had concealed trades by creating 'fictitious operations' registered in the bank's systems but which did not correspond to any economic reality.

An internal audit is underway to reveal more details about how the trader evaded detection for almost a year, by only choosing 'very specific operations with no cash movements or margin call and which did not require immediate confirmation' and by constantly switching between different types of instrument.

By the time Kerviel was caught, he had amassed positions worth €30bn on the Euro Stoxx, an index of Europe’s biggest companies, €18bn on Germany’s Dax and €2bn on the UK’s FTSE.

The bank believes he acted alone and did not profit from his trades, and promised to reveal more after the internal audit has completed.

Further reading:

Société Générale announces massive write-down - and fraud

Societe Generale chief, Daniel Bouton, faces President Nicolas Sarkozy's wrath as critical voices grow

Like this story? Spread the news by clicking below:

 del.icio.us     Digg this     reddit!