SocGen- Jerome Kerviel
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Societe Generale- Rogue Trader
Transcript of SocGen- Jerome Kerviel
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Societe Generale The Company
INTR
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Founded in 1864
Core Businesses:› Corporate +
Investment Banking› Retail Banking› Global Investment
Services
Global Presence with over20 million customers worldwide
Over 130000 employees
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Security Basics
Common Security Breaches:› Viruses› Spyware› Phishing/Spoofing› And over 1 million
malware Let’s Compare!
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Starting Position: Risk Management Office “The Mine”, Back-office systems & security systems
Education: Masters of Finance, University of Lyon
Age : 31 years
1. Name: Jerome Kerviel
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Ending Position: Lower-level trader, Delta One- Trade
index futures as a way to hedge company risk and make
small profits Co-workers’ impressions: “quiet and unassuming trader”,
“unimpressive education background”, “motive to impress his seniors”
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3. What Kerviel Actually Did: Bypassed all internal controls and made high risk unauthorized trades for a total of $87 billion in trades.He bypassed controls by creating fictitious trades in “trading book” to offset his trades.
2. Job Role: Purchase European stock index futures
And sell others as a hedge.
Job Goal: Create small, low-risk profit stream based on
Large volume.
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5. Used other employees passwords.
Took minimal vacation days.
Supervisors ignored over 75 trade errors.
4. HOW DID HE BYPASS CONTROLS:
Learnt internal controls in starting position in back-
office
> Exactly knew the internal checking schedule and
removed all false transaction in books minutes before
check.
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“A cocktail of IT failures”
System Vulnerabilities
IT controls including:› General Controls› Application Controls
Security Policies
KEY C
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System Weaknesses
Management | Organization | Technology› Unauthorized Access› Internal Control Breach› Managers’ failure to identify key errors
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Responsibility for losses
Kerviel’s ethical misconduct
Failure of internal controls
Management and Supervisors
IT Audit Controls
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Fraud Prevention Techniques
Randomize internal checks
Track changes in trading books
Effective Supervision and Reviews
Mandatory Vacation Days
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Access Controls:› Biometric Sensors› Token fob-keyP
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Fraud Prevention Techniques
Management Training:› Understand
importance of data security
› Actually follow Company policies
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Fraud Reaction Techniques
Crucial to appropriately act upon fraud within company
Conduct strict management reviews
Conduct audit on internal controls and responsible management
REA
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Redesigning Internal Controls
General Controls
Application Controls
Access Controls
Recurring Management
Training
MIS Audit Committee
CO
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Supervision Rotation
Automate Trading log
HR policies for back-
office
Acceptable Use policy
Oversee MIS audits
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Allen, P. (2008, January 28). Jerome Kerviel behind Societe Generale fraud. Retrieved July 4, 2011, from The Telegraph: http://www.telegraph.co.uk/finance/newsbysector/banksandfinance/4667707/Jerome-Kerviel-behind-Societe-Generale-fraud.html
Gauthier-Villars, D. (2010, October 6). Rogue French Trader Sentenced for 3 years. Retrieved July 4, 2011, from Wall Street Journal: http://online.wsj.com/article/SB10001424052748703726404575533392217262322.html
Hurst, A., & Leveque, T. (2008). "SocGen Discloses Details". Retrieved July 4, 2011, from Market Watch: http://www.marketwatch.com/story/societe-generale-traders-named-as-jerome-kerviel-report
Parase, N. (2008, January 25). French Bank Trader Says Rogue Trader Lost $7 Billion. The New York Times .
BIB
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APPLA
USE…
..
It’s good we found the guy
who lost 5 billion!
That’s him!
Need a little chip in the stock market? might need
180,000 years of life
