In 1995, Barings Bank PLC, which proudly boasted of its position as banker to the Queen of England,

collapsed after announcing trading losses of £827 million. The majority of those losses (greater than $1
billion) were attributed to one trader, Nick Leeson, who had been promoted from a back-office clerical
role to a position as a futures trader. Leeson had used his knowledge of back-office procedures to hide
the size of the trades he was placed on the Japanese stock market. The reward for his efforts was a six-
year jail sentence. Fortunately, Baring’s clients were in no danger because the losses involved only
Barings’ own trading accounts. The Dutch bank International Nederland Groep NV (ING) subsequently
purchased the assets of the collapsed bank. In January 2008, history repeated itself on a much grander
scale when Société Générale (SocGen), one of France’s largest banks, revealed that a rogue trader,
Jérôme Kerviel, had placed a series of bad bets on European futures to the tune of a €4.9 billion ($6.9
billion) loss for SocGen.

Kerviel’s activities sent a shock wave through world financial markets that were already reeling from
large trading losses from the U.S. mortgage crisis, not only because of the sheer size of SocGen’s losses
that were allegedly attributable to one trader but also because of the apparent lack of controls in place
over transactions amounting to billions of dollars. Investigations into the exact methods by which Kerviel
was able to conceal his activities revealed significant gaps in both SocGen’s risk management systems
(the extent to which the bank is exposed to risky trades) and financial controls (the functional
department responsible for ensuring that all trades—purchases and sales—are balanced at the end of a
trading period):

• How could an inexperienced midlevel trader earning a modest €100,000 a year (a low salary by the
standards of his fellow traders) be allowed to run up a trading position with a risk exposure to the bank
of as much as €50 billion?

• Investigations revealed that Kerviel had been engaging in unauthorized trades since 2005 and that the
European exchange on which he placed those trades had raised concerns about his activities in
November 2007. Some suggested that the profits Kerviel’s trading activity for that year earned—€55
million ($81 million)—factored into SocGen’s decision not to investigate Kerviel’s activities in any detail.

• Kerviel’s profits in 2007 appeared to convince him that he had discovered a new and highly lucrative
system for futures trading. Investigators could find no other motive for his actions than simply a desire
to increase his remuneration at the bank through a year-end bonus for strong financial performance.
They found no evidence of any intent to embezzle funds, and they noted an apparently naive belief in
his trading skills.

• While there were changes in personnel in the aftermath of the disastrous trading activities, including
the head of the equity futures division and the head of information technology, the board of directors of
SocGen refused to accept the resignation of CEO Daniel Bouton, and he, in turn, declined to accept the
resignation of Jean-Pierre Mustier, the chief executive of SocGen’s corporate and investment banking
division.

• Critics of SocGen’s leadership team argued that a takeover of the bank would be the inevitable
outcome of this event. One analyst was quoted as stating: “The management has lost its credibility and
that is the first barrier to any takeover bid. There is likely to be a lot of interest from around Europe.”
• Kerviel was arrested at the end of January and charged with breach of trust, falsifying and using
falsified documents, and breaching IT control access codes.

• In contrast, Kerviel has also become something of an Internet celebrity, with many French sites hailing
him as a modern-day Robin Hood or the Che Guevara of finance. One enterprising web merchant quickly
produced a range of T-shirts in support of Kerviel, including one that reads “Jérôme Kerviel’s girlfriend,”
and another that reads, “Jérôme Kerviel, €4,900,000,000, Respect.”

• SocGen’s biggest rival in France, BNP Paribas, had tried unsuccessfully to acquire SocGen in 1999 in a
hostile takeover bid. The rival was, therefore, the most logical choice to come after SocGen in such an
obvious moment of defenselessness. However, after considering the option of another takeover bid,
BNP chose not to pursue the opportunity. SocGen avoided the same fate as Barings Bank by raising an
$8 billion rescue fund from private equity investors.

SocGen’s clear lack of risk management and financial controls inevitably caught the attention of France’s
finance minister, Christine Lagarde. Her initial report on the incident, produced within eight days of the
event while many simultaneous investigations were still ongoing, raised several key questions including
the ease with which Kerviel appeared to avoid detection, even though his trades amounted to billions of
dollars, the extent to which the losses caused broader market problems, and what needed to be done to
ensure the event never happened again. Her report ended with a call on the French government to give
more power to punish those who fail to follow established best practices. On October 5, 2010, a French
court found Kerviel guilty of all charges and sentenced him to five years in jail (with two years of the
sentence suspended for time already served). Kerviel was also ordered to repay the €4.9 billion ($6.9
billion) he lost for SocGen. While the company clarified that it had no intention of pursuing Kerviel for
the money, the repayment order served a dual purpose—to repudiate Kerviel’s defense that SocGen
knew about his activities and “looked the other way” as long as those trades were profitable and, more
importantly, to strengthen SocGen’s defense against future share- holder lawsuits questioning SocGen’s
governance practices. Kerviel appealed the court’s decision. In October 2012, after a four-week trial in
June 2012, a Paris court dismissed his appeal and reiterated that “Jerome Kerviel was the sole creator,
inventor, and user of a fraudulent system that caused these damages to Société Générale.” In March
2014, Kerviel lost his final appeal against his three-year sentence. After embarking on a long-distance
walk from Paris to Rome and back again, including a meeting with Pope Francis at the Vatican, Kerviel
announced that the journey was helping him, “to come to terms with his past and his future.” However,
while the French High Court upheld the sentence, it did order a review of the damage settlement of €4.9
billion ($6.3 billion) that Kerviel had been ordered to pay, arguing that the lower court had not taken
into account SocGen’s own responsibility in the case. Kerviel was released from jail in September 2014
to serve the rest of his sentence under house arrest through the use of an ankle monitor. In June 2016, a
French tribunal awarded Kerviel €450,000 for unfair dismissal from his position at SocGen. While the
criminal case against him may be over, the new civil trial ordered by the High Court to revisit the
damages amount is still ongoing.
1) Who are the stakeholders in this case?
- Within the case SOCGEN, there are two main instigators that chain effected other stakeholders
that were business related. First, Nick Leeson who was a futures trader for Barings Bank PLC
located over in England, was responsible for losses totalling up to $1 billion dollars. Two other
additional stakeholders over in France "sent a shockwave through world financial markets."
Jerome Kerviel was a rogue trader at the largest bank in the country; Societe Generale. Also
responsible for a massive amount of losses for the company, Kerviel's grand total was
approximately $7.9 billion. 
2) What did Jérôme Kerviel do wrong?
- Jerome Kerviel's actions caused SocGen a massive set back not only in business ($$), but as a
brand as well. Shady, unethical business decisions such as these don't go unforgotten, and
because of Kerviel's choice to place a series of bad bets on European futures. Engaging in
unauthorized trades since 2005, his poor choices caught up to him and was sentenced to 5 years
in jail on October 5th, 2010. 
3) What did SocGen do wrong?
- SocGen's shy attempts to find the source of the losses resulted in the company taking a massive
hit financially, and socially in the business-to-business world. SocGen's lack of risk management
inevitably caught the attention of the nations finance minister, only to reveal that Kerviel's
actions were not too difficult to find, management wasn't following procedure properly with
routine checks and because of this, Kerviel got away with his scheming for 5 years until he was
caught.
4) Identify the ethical violations that occurred in this case.
- There are many ethical violations in the SocGen case. First of all, when management initially
ssuspected that something was up with one of their own traders, they should have done
something more about it instead of being content with the fact that they made a profit. The
case pretty much states the rest, "Kerviel was arrested at the end of January and charges with
breach of trust, falsifying and using falsified documents and breaching IT control access codes
(pg.110).
5) Would the outcome have been different if Kerviel’s trades in European futures had worked out?
- The outcome would not have been different if Kerviel's trades in the European futures had
worked out. €4.9 billion or $7.9 billion in canadian dollars is a heck of a lot of money and I'm
sure someone would realize that there was something wrong going on behind the scenes. Then,
from there an investigation would be conducted where certain illegal actions would come to
light.
6) What actions could SocGen have taken to prevent such large losses?
- Like the case said, Socgen had a clear lack of risk management and financial controls (pg.110), so
they clearly need to improve directly in those areas of their business. They should definitely
monitor the actions of their traders more closely to prevent these situations from reoccuring.