Tales of a rogue trader continues

If you read my first post about French rogue trader Jerome Kerviels‘ big so call defrauding of SocGen, you will remember my exact words being

I am a little puzzled as to how any institution with all the smart people in accounting, auditors, top notch security software, all the gatekeepers of checks and balances could have not catch on sooner to such a colossal fraud”

I was not surprise to read online today that he had help. Puzzle solved. Kerviel is now saying the bank had full knowledge of his shenanigans and is now using him as a “scapegoat”. He said they approved and authorized the trades that resulted in almost $8 billion in lost to France largest bank.

Today French authorities named Moussa Bakir who works for a subsidiary of SocGen who was aiding and abetting Kerviels’ titanic loss in the markets. In my initial blog post about this story, I also said

In my effort to understand it I would theorize maybe he made a few bad trades and sought to correct it by trading bigger and riskier. This is a common problem for some traders speaking from a FOREX point of view. So you try to recover but it gets worst. Instead of admitting defeat settle down and gather your marbles you take on more and more and more until BAM!!!

In the link below you can read the entire story where Jerome Kerviel said he “got carried away”. Similar to what I had theorized happened. The link below mention a trading strategy he used called a “martingale” so I looked it up.

According to Wikipedia “Originally, martingale referred to a class of betting strategies popular in 18th century France. The simplest of these strategies was designed for a game in which the gambler wins his stake if a coin comes up heads and loses it if the coin comes up tails. The strategy had the gambler double his bet after every loss, so that the first win would recover all previous losses plus win a profit equal to the original stake.

Nuff said, Read the story here.

There is also another story about an ex auditor of the bank saying that SocGen often openly flouted risk guidelines. They appoint newbies who know very little about their system for checks and balance. According to the ex auditor breaking the rules were ok as long as you were making money. See story here.

What I have gathered from everything here is that his employers know of the sometimes risky strategies used by their traders but ignore it as long as they were profitable. Then this scandal blew up in their faces and they leave the so called “rogue trader” to take the blame.


~ by RB on February 9, 2008.

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