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# The French Fraud King - \$7.14 billion fraud by one man

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Founder
Joined: 04 Dec 2002
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The French Fraud King - \$7.14 billion fraud by one man [#permalink]

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24 Jan 2008, 23:58
This off-topic as pure bschool life relates - but so much about the business world - could not resist posting. Mods feel free to move as consider appropriate.

The French Fraud King - \$7.14 billion fraud by one man
http://biz.yahoo.com/ap/080124/france_s ... fraud.html
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CEO
Joined: 15 Aug 2003
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Re: The French Fraud King - \$7.14 billion fraud by one man [#permalink]

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25 Jan 2008, 00:44
I was watching fast money and this came up for discussion. A couple of traders were calling BS on the official story -- Company lost money, threw the guy under the bus. Seems Enronesque -- How could someone at the top not know?

Quote:
The bank called the fraud "exceptional in its size and nature," and said it apparently went undetected for more than a year by its own multilayered security systems.

It would place the young trader, identified as 31-year-old Jerome Kerviel, atop the pantheon of rogue traders for a scheme from which bank executives said he apparently did not make a personal profit.

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Manager
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Re: The French Fraud King - \$7.14 billion fraud by one man [#permalink]

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10 Feb 2008, 10:18
I am quite surprised too as to how this guy could go on taking positions without the managemetn getting to know.

Most Trading companies have strictly defined trader limits for purposes of reporting the Value at Risk.

However, instances like these arent that uncommon.........search for Hamanaka (Sumitomo) and you'll get an idea.......

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Re: The French Fraud King - \$7.14 billion fraud by one man [#permalink]

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10 Feb 2008, 10:43
He used to be in middle office and still had passwords. He took large one way trades, and booked fake trades to reverse them (typical method for a delta one desk, but he was not booking the reverse). His VaR would simply be the net of the fake and real trade - he kept rolling the fake trades so not to communicate the trade to them (they would not know of it) - a lot of work.

The way he was caught is that the fake reverse trade on one deal took the counterparty over its credit limit, so would have been subject to margin calls. I find it crazy that he was allegedly trying to hide the 1.5bn profit from 2007 when he managed to wipe it out, and turn it into the 5bn loss.
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Re: The French Fraud King - \$7.14 billion fraud by one man   [#permalink] 10 Feb 2008, 10:43
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