The Zeitgeist

Société Général (SG) announced yesterday that a ”rogue trader” had racked up US$7.2 Billion in losses.  The NYTimes reporting of this story reported that this “trader” identified as Jerome Kerviel had “managed to evade multiple layers of computer controls and audits for as long as a year.”  Kerviel is described as a “mid-level” employee who was, apparently according to SocGen, a technical and criminal mastermind who single handedly managed to pull off the largest bit of trading fraud in history.

Let me get this straight, a trader was able to get around the entire firm’s auditing and compliance infrastructure and not be noticed while racking up a 7 BILLION dollar tab?   Years ago, like back when Barings Bank was taken down by a ~$1Billion blunder by Nick Leeson  in 1995, the degree of automation was a mere fraction of what it is today — mostly because of Leeson we have the depth and breadth of regulatory and audit controls we have.     

To say it strains credibility is a gross understatement.  If SG didn’t have a full set of automatic auditing systems in place they were mostly likely in violation of securities laws, not just here in the US, but most certainly in the EU as well. Having worked on Wall St. for many years, I’ll bet they had quite a complete auditing system in place. It is impossible to believe that $7.2 billion just “went missing” without the complicity of many, many people at SG. It should be obvious that what we have here is a fall guy… it will be rather entertaining to watch as the investigation unfolds as we see which heads get lopped off over this obvious and not-very-creative lie…  

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