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Details Emerge in French Bank Fraud Case

By Molly Moore
Washington Post Foreign Service
Monday, January 28, 2008

PARIS, Jan. 27 -- French bank Societe Generale said Sunday that the junior trader accused of perpetrating one of the largest banking scandals in history stole computer access codes and created fraudulent e-mails to bet more than the bank's entire market worth on risky investments.

The bank said J¿r¿me Kerviel, 31, was gambling with more than $73 billion in equities deals -- double the reported market value of the bank -- when he was caught last week.

The losses totaled at least $7.14 billion, Societe Generale said after scrambling in secret for five days to unwind Kerviel's investments, according to the bank's description of the fraud.

Kerviel has been under interrogation by Paris police since turning himself in Saturday, Paris prosecutor Jean-Michel Aldebert said.

The questioning was "going very well and the investigation led by the specialists of the financial police is extremely fruitful," Aldebert said.

Societe Generale, France's second-largest bank, began releasing more details of its own investigation this weekend after growing criticism from top French officials and global financial analysts of its handling of the crisis.

Kerviel had been making unauthorized trades of equities futures on a prediction that markets would drop and started creating losing investments to help cover his tracks, according to the bank.

But the catastrophic global stock market dive turned "this sad affair into a Greek tragedy," Societe Generale chief executive Daniel Bouton told the daily newspaper Le Figaro, as reported in its weekend edition. "His virtual losing position became huge."

The bank said Kerviel hid his unauthorized transactions by using his colleagues' computer access codes and falsifying e-mails and other documents. He was able to dodge internal monitoring systems with the knowledge he gained from working for five years on the bank's security systems, according to bank officials.

The fraud began unraveling as world stock markets started their deepest plunge since the Sept. 11, 2001, terrorist attacks in the United States, bank officials said.

By the end of the trading day Friday, Jan. 18, Kerviel's losses totaled about $2 billion, bank officials said this weekend in statements and interviews.

The following Monday, with Asian and European stock markets nose-diving, the losses expanded to $7.14 billion, the bank said.

Some market analysts say that Societe Generale's frenzied efforts to unwind its positions exacerbated the turmoil in Germany's DAX index, the Dow Jones Euro Stoxx index and London's FTSE 100.

The bank denied those allegations, saying in a five-page statement released Sunday that it had conducted its efforts in a "controlled" manner.

Bouton "decided to close the positions as quickly as possible and, in accordance with market regulations, to postpone all communication on the issue and on the estimated results until said positions had been closed," the statement said.

Bank officials also began hedging their statements that they believe Kerviel acted alone. Jean-Pierre Mustier, chief executive of the bank's corporate and investment banking branch, told reporters in a telephone conference call, "I cannot guarantee you 100 percent that there was no complicity," according to the Associated Press."

Mustier and other bank officials maintain that Kerviel did not appear to profit personally from his fraudulent deals.

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