Rogue Trader: Risk Control Systems Scrutinized, Kerviel in Custody

The French
financial trader at the centre of a massive fraud case had gambled
around 50bn euros before being uncovered, his employer says.

Bank Societe Generale accuses Jerome Kerviel of committing it to purchases worth a vast $73bn (£37bn).

When the bank reversed all the deals he allegedly made, it was hit with a loss of 4.9bn euros ($7.2bn).

Lawyers for Mr Kerviel, who is being questioned by police, said their client had "committed no dishonest act".

"He did not siphon off a single cent, and did not profit in any way" from the bank's assets, the lawyers told AFP.

They also accused the bank of trying to "create a smokescreen which
would divert public attention from losses that were significantly more
substantial than those it accumulated in recent months".

The trader
thought to have cost one of France's biggest banks 4.9bn euros ($7.1bn;
£3.7bn) is in police custody.

Jerome Kerviel is being held for questioning about the alleged fraud at the French bank, Societe Generale.

The 31-year-old trader had not been seen since the financial scandal
broke on Thursday. His family and lawyer have insisted he is innocent.

On Friday police searched Mr Kerviel's flat in an upmarket Paris district taking away a number of briefcases.

Police also visited the headquarters of Societe Generale, where they
were given documents and computer disks relating to the alleged fraud.

Mr Kerviel arrived at the headquarters of the financial police on Saturday at 1400 (1300 GMT) for questioning.

Correspondents say the police never launched a manhunt for the trader and it is likely they knew all along how to find him.

Mr Kerviel may be held for 24 hours without charge, with a possible extension if granted by a judge.

Jerome Kerviel, 31, a junior trader at Société Générale Paris headquarters, caused five times the damage as notorious rogue trader Nick Leeson, who ran up losses of £800m ($1.58bn) that resulted in the collapse of his employer Barings Bank in 1995. Kerviel created fictitious accounts to take risky positions in the derivatives market that resulted in huge losses as stock markets across Europe fell.

The losses, reckoned to represent the largest ever fraud by a single trader, have shaken a banking system already struggling from the effects of the US sub-prime lending crisis. The City of London is buzzing with rumours that it was the unravelling of Kerviel's risky position after SocGen discovered them last weekend led to a drop in share prices across Europe, as market bears responded to a influx of sell orders by pushing markets further down.

[...]

Kerviel, described in reports as both intelligent and a troubled Walter Mitty-style fantasist, appears to have acted alone and without any personal financial benefit. He apparently joined the bank as a developer working on the middle office systems that control how much a trader can risk. The systems limit how much a trader or group of traders can risk.