ERM-BC-COOP My bosses made me do it

 

This will be short.

If you believe Jerome Kerviel, the Société Générale trader who allegedly lost billions for his company, the reason he managed to gamble so much at a time was because, he told Der Spiegel, his "supervisors had deactivated the system of alerts. If I had wanted to, I could have even invested €100 billion in a single day. My bosses removed all the safeguards off my computer."

The Der Spiegel article is online at http://www.spiegel.de/international/business/0,1518,729155,00.html.

According to Kerviel, his supervisors knew about his bogus trades. "Already in April 2007, they received an e-mail saying that I was making bogus trades with nonexistent counterparties on a massive scale. My bosses told me that I should take care of the problem. Over the course of 2007, they received many more e-mails on the same issue."

It should be noted that, again if Kerviel's claims are true, that the trader made billions for his employer by risking similar large amounts.

He came crashing down, perhaps bringing Société Générale with him, when be made several wrong bets and lost roughly €5 billion.

What could a risk management practitioner have done?

Aside from going to whatever authorities regulate trading in France, it would seem "not much."

Obviously - and again, if Kerviel is being honest - management was willing to close its eyes to his excessive and bogus trading - he had been making profits for the company after all - and turned off some of the risk prevention or limitation controls.

Could an auditor have discovered this?

Possibly.

Could email monitoring have uncovered it. Likely as Kerviel stated, "they (management) received many more e-mails on the same (bogus trades) issue."

It is often frustrating to advise management about risks and means to avoid or mitigate them only to have management either ignore the recommendations or to actually work to enhance the risk as Kerviel claims his management did at Société Générale.

It's worth reading the entire Der Spiegel interview with Kerviel.

 

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