PARIS - In what appears to be the largest trading fraud ever carried out by a single person, a futures trader at French bank Societe Generale is accused of making unauthorized transactions that cost the bank $7.18 billion after a bad bet that markets would rise.
The discovery, made as markets began to plunge, places the young Frenchman at the pinnacle of the rogue trader pantheon in a case with an intriguing wrinkle: The bank, France's second-largest, said he appears to have netted no personal gain from the scheme.
Undetected by the bank's multilayered security systems, Jerome Kerviel, a 31-year-old junior trader, had for over a year been fraudulently using the company's funds to bet on European stock markets, Societe Generale said.
The bank said it learned of the fraud last weekend. The timing could not have been worse: On Monday, money markets suffered their blackest day since Sept. 11, 2001, meaning Societe Generale was forced to sell the contracts built up by the rogue trader just as stocks were plunging. It took three days to unload them.
Societe Generale disclosed the losses yesterday, making Kerviel one of history's biggest banking frauds and prompting immediate calls for tighter regulation of the industry.
The trader was compared to Nick Leeson, who in 1995 bankrupted British bank Barings. Barings collapsed after Leeson, the bank's Singapore general manager of futures trading, lost $1.38 billion on Asian futures markets, wiping out the bank's cash reserves. The company had been in business for more than 230 years.
Though Societe Generale's loss was greater than at Barings, chief executive Daniel Bouton insisted that the bank is still financially sound.
The company said it expects to post a net profit of $874 million to $1.16 billion for all of 2007 - even after the fraud and another $2.99 billion lost in the subprime mortgage crisis that has also roiled markets.
As a result, the bank said it would be forced to raise $8.02 billion in new capital.
Among the many questions were how and why Kerviel perpetrated what the bank described as fraud "exceptional in its size and nature." It remains unclear whether he was acting out of malevolence, ambition, or some other reason.