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Futures Trader's Motivation Was His Reputation, French Prosecutor Says

By John Ward Anderson
Washington Post Foreign Service
Tuesday, January 29, 2008

PARIS, Jan. 28 -- The French financial trader accused of racking up $7.1 billion in losses at the country's second-largest bank through a series of unauthorized deals was not motivated primarily by personal enrichment, but instead was seeking to boost his reputation, the prosecutor in the case said Monday.

"He wanted to be seen as an exceptional trader, an astute market player," prosecutor Jean-Claude Marin said of JérĂ´me Kerviel, a 31-year-old trader at Societe Generale. "It functions a bit like a drug, it's an addiction. . . . There's a sort of spiral you can't get out of."

"He did not do it directly for his personal gain," Marin said at a news conference in Paris, though success could have led to bigger bonuses. "He acted as a trader, he certainly acted outside the authorization he'd been given to trade on the market, but he didn't do it expressly to damage the bank through fraudulent operations."

Kerviel's salary was about 100,000 euros a year, about $145,000 at current exchange rates. According to Marin, he told investigators during two days of interrogation that he expected a bonus of 300,000 euros ($438,000) for 2007.

Marin said he would seek preliminary charges against Kerviel of forgery, breach of trust and fraud. The case now goes to a French judge, who will decide whether to open a formal investigation.

If convicted, Marin said Kerviel could face up to seven years in prison and a fine of 740,000 euros ($1.07 million).

Kerviel, who joined Societe Generale in August 2000, worked for five years in back-office management positions, where he learned about the various mechanisms and procedures used to monitor traders. He moved to a front-office position as a trader in 2005 and began making high-risk wagers on the markets in 2006 -- using, prosecutors say, his inside knowledge of the bank's monitoring systems and falsified documents to hide his activities.

Martin said, for instance, that when Eurex, a derivatives exchange owned by Deutsche Boerse and SWX Swiss Exchange, contacted Societe Generale in November to question Kerviel's trades, Kerviel "produced a fake document to justify the risk cover."

Martin said Kerviel alleged that other traders at the bank employed the same sort of tactics that he did.

French Finance Minister Christine Lagarde has generally backed the bank's handling of the affair, saying that Kerviel appeared to have acted alone. She told France 2 radio Monday that "there's no reason to doubt that the bank did everything that it had to do in terms of regulations."

The bank asserts that Kerviel, apparently on his own, took risky bets on the rise and fall of futures markets in Europe, holding positions worth about $73 billion when he was caught -- more than twice the market value of the bank. It quietly moved last week to unload those positions before making his acts public. Global markets began to collapse at about the same time, finally leaving the bank with about $7.1 billion in losses tied to Kerviel's activities.

Attorneys for Kerviel paint a different picture. They said on Sunday that their client had been set up as scapegoat by the bank, which they asserted was trying to "create a smoke screen to divert public attention from far more substantial losses" that it is likely to suffer as a result of exposure to the U.S. subprime mortgage crisis.

"In my view, he was thrown to the lions before being able to explain himself," one of Kerviel's attorneys, Elisabeth Meyer, told the Associated Press. "It's a lynching."

In an interview on French radio, Societe Generale's chief executive, Daniel Bouton, called that argument "completely stupid."

"How could you want to imagine that we would have been able to hide a hole by another hole?" he asked.

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