Saturday, May 24, 2008

SocGen Is Still Lying

Societe General (SocGen) is back in the headlines again, this time with a little more (just a nanometer more) truthful then what was reported back in January. Back in January, the blame was firmly and solely on Jerome Kerviel, the rogue trader who was somehow able to hack the banks middle-office and back-office trade reconciliation and audit systems single-handily.

Now, SocGen, in its internal report released Friday, May 23, is stating that there were some management oversight failures. According to MarketWatch, SocGen is stating “Multiple mistakes along most of the chain of command allowed a rogue trader to amass billions of euros of fraudulent positions that eventually led to a loss of $7.7 billion.”

Yes, managers up the chain of command made multiple mistakes. However, having worked in an Investment Bank front- and middle-offices and in risk management, I find it laughable that SocGen is still in denial and is willing to publish this type of rubbish. I think other people who have worked at an investment bank middle-office will also find SocGen’s latest report to be incredulous.

The truth will come out, no matter how slowly; it will come out. And the truth is that someone at the senior management level knew of Jerome Kerviel’s activities and signed off on it. Other layers of management, knowing that a senior manager signed off on Kerviel’s activities, allowed the trading marks to continue.

The real mystery that I cannot fathom is what SocGen’s internal audit and compliance departments were doing all those years that Kerviel was trading and why they didn’t raise any red flags to the board of directors. Perhaps, the board of directors was the one who signed off on Kerviel’s activities.

I look forward to another official report from SocGen toward the end of 2008 stating that there were additional mistakes made along the way, including managers in charge of checking trading marks and positions. Even if that report comes out, it will still be mostly fiction.

Have A Great Weekend!

Ed Kim
Practical Risk Manager

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