$7.1 billion loss at major European Bank due to fraud
I haven’t been able to thoroughly analyze this situation, but it seemed like something particularly germane to this blog (so I decided to post it with brief commentary). Basically, the French bank Société Générale (SocGen) recently revealed that single rogue employee was able to concoct “elaborate, fictitious transactions” that ultimately cost the company $7.1 billion dollars (€4.9 billion).
Jérôme Kerviel, the perpetrator, was able to breach 5 levels of controls and was called a “computer genius” by the governor of the bank. Apparently, he was allowed to move from a back office position to the trading floor, which removed the separation of duties that was intended to protect against this kind of fraud. The expertise in control procedures that he gained while working in the back office, enabled him to develop the complex scheme which covered his fraudulent actions until auditors discovered fictitious trades on the books of the bank’s risk management office.
As this story unfolds, it will be interesting to hear more of the details of the breach, particularly with respect to computer security. From a policy perspective, many questions have been raised about tightening controls and even if a single person was able to engineer the process, how a single person would be able to finance the fraud without detection. Why did the numerous financial safeguards fail at the hands of single person?
This must be quite a blow for an already tumultuous industry…
http://www.businessweek.com/globalbiz/content/jan2008/gb20080124_769729.htm?campaign_id=rss_daily
http://www.iht.com/articles/2008/01/24/business/socgen.php
http://www.iht.com/articles/2008/01/25/business/profile.php
UPDATE: apparently there are conflicting reports about Kerviel’s computer skills and it should be noted that SocGen has not accused him of personally profiting from the trades (though they may in the future). This incident sounds like its going to be in the news for quite awhile.