Societe Generale "Victim" of Major Fraud

Societe Generale, France's second largest bank, has apparently fallen victim to the single large fraud in history ever to be perpetuated by one single trader. In the mid 1990's, Nick Leeson of Barings bank was responsible for a $1.38 billion dollar fraud - well Societe Generale has trumped that in spades, and announced a $7.14 billion dollar fraud of their own.

The story, to be honest, is quite hard to believe. Apparently a trader who had worked at the bank since 2000 and made only 100k euros per year was responsible for this fraud. It is unknown whether or not the trader gained financially from this fraud, or simply engaged in deceptive trades that eventually collapsed around him. What we do know is that the bank uncovered this fraud this past weekend and had to unwind their positions in the midst of a major global stock market meltdown.

Apparently the trader, in his 30's, was responsible for futures hedging on European equity market indices, and had intimate knowledge of the firm's security procedures.

Again, the bank claims that he acted alone. One has to ask the question - how could one single trader at a bank pile up over $7 billion dollars in losses for the bank and not one person noticed? Where were his supervisors? Who was watching the books? Just ridiculous. I will be interested to hear more about this story as the details of the situation start to get fleshed out.

Societe Generale, which has seen their stock take a massive beating over the past six months, will no doubt trade even lower on this news. Societe Generale has had to ask for over $8 billion in capital and has quite a bit of egg on their faces, and rightly so. Where are the controls? Who fell asleep on the watch? For one trader to rack up such a big loss with no one noticing is completely embarrassing for the bank and totally unforgivable.

Filed under: General Market News | Stock Market Scandals