They still haven't caught the secretive Brazilian Wayo-King who actually masterminded this scheme - or imagines he did. ha ha
my interpretation. It looks like Jérôme Kerviel invested in stock futures, "offsetting the risk" with imaginary Puts on similar securities.
Foolishly Société Générale did not carefully audit the imaginary Puts because they were a one-time expense/risk without further exposure.
finchannel.com
Jean-Michel Aldebert, head of the financial section of the Paris prosecutor's office, said Kerviel was giving "very interesting" explanations. "From what he told me, he was fine psychologically." He refused to say whether Kerviel might face preliminary charges.
In a five-page statement January 27, the bank said Kerviel used its money to build massive positions ($73.5 billion in notional value) in futures contracts tied to the performance of baskets of stocks traded on exchanges in London, Paris, Frankfurt and other European markets.
Since those bets greatly exceeded the amount of capital he was allowed to put at risk, Kerviel entered fictitious and offsetting trades in Societe Generale's computer system that appeared to minimize the odds of big losses, the bank said. The trades were purposely chosen to avoid detection because they did not require cash contributions and were not subject to margin calls, which would require putting up more money if the fictitious bet soured, it said.
The bank said he plowed 30 billion euros ($44.1 billion) into the Eurostoxx index, another 18 billion euros ($26.5 billion) on the DAX in Germany and 2 billion euros ($2.9 billion) on the FTSE in London. The combined value of those positions, 50 billion euros ($73.5 billion), is far more than the bank's market capitalization of 35.9 billion euros ($52.6 billion), and close to the annual GDP of countries such as Slovakia, Qatar or Libya.
business.timesonline.co.uk.
Jérôme Kerviel, the shy Breton who almost broke France’s second bank with his rogue trades, has confessed to police in Paris.
For two days and nights, Mr Kerviel, the son of a metal worker and a hairdresser, poured out his tale, taking apparent pride in the secret deals worth billions of euros that he carried out under the noses of the banking establishment.
Using codes from the bank’s own security controls, he was able to create fictitious contracts. His operations balanced at the end of the year. He knew how to beat the system, staying ahead of the checks, because he had spent four years working in the “middle” and “back” monitoring offices.
He stole access codes for IT equipment that meant that he could cancel trades without the risk department knowing. He forged documents that meant that he could input details of fictitious trades on to the bank’s systems.
But the sheer size of his latest, and last, deal raised eyebrows in SocGen’s risk department. The risk was “abnormal”, the bank said, and senior staff on the trading desk were alerted.
“He was caught because he moved from what he knew to another realm,” SocGen said, whilst maintaining that Mr Kerviel had acted alone.
He appeared to have behaved irrationally, taking positions that bet on a turnaround in the sliding market in January. He was then sucked into trying to restore losses by taking ever-steeper risks.
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