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PARIS - TERROR bombs hit London, financial markets wobbled, and Jerome Kerviel was hooked.
The trader at the centre of a massive banking scandal in France told investigators that his spiral of trades that ended in a loss of nearly 5 billion euros (S$10.5 billion) for his bank, Societe Generale, started with a 2005 bet that markets would fall - and that he was proved right after the London bombings that July.
More damaging for Societe Generale, Kerviel also claimed to investigators that his bosses at France's second-largest bank must have been aware of his massive risk-taking on markets but turned a blind eye as long as he earned money for the institution.
Kerviel was questioned by police from Saturday through Monday and then presented to judges who lodged preliminary charges of breach of trust, forgery and unauthorized computer activity against him. If tried and convicted on those charges, he faces up to three years in prison and hefty fines. Such charges mean judges have decided that further investigation is needed; they do not indicate guilt.
The respected daily newspaper Le Monde and a French Internet news site, MediaPart, published extracts Tuesday from Kerviel's police questioning. A spokeswoman for the Paris prosecutor's office, Ms Isabelle Montagne, confirmed to The Associated Press that the remarks were Kerviel's.
'I can't believe that my superiors were not aware of the amounts I was committing, it's impossible to generate such profits with small positions, which leads me to say that when I'm in the black, my superiors close their eyes about the methods and volumes committed,' he said, according to the extracts.
A lawyer for the bank, Mr Jean Veil, accused Kerviel of lying, telling RTL radio: 'When you are questioned by police or judges, you have the right to lie.' He said the bank was 'a victim of someone who lied, who cheated.'
Nevertheless, Kerviel's claims that managers looked the other way were likely to increase pressure on the bank, which has struggled to explain how its layers of checks failed to detect that Kerviel had bet 50 billion euros - more than Societe Generale's market worth - on European markets.
CEO Daniel Bouton says his offer to resign, already rejected by the board, is still on the table. He found some support Tuesday from French Finance Minister Christine Lagarde, who told senators: 'I am not convinced that it is wise to change the captain when the ship lists a little.' Prime Minister Francois Fillon said his government will seek to fend off any hostile takeover of Societe Generale.
France's financial market regulator said on Tuesday it has opened an investigation into Societe Generale, but did not give details. Les Echos newspaper reported that the regulator has been examining trading in the bank's shares in the days before it stunned the industry with its Jan 24 announcement that 'massive' fraud by Kerviel cost it 4.82 billion euros as it unwound his trades.
According to five routine declarations published this week by the market watchdog, board member Mr Robert Day and his family's trusts and charitable foundations sold shares in Societe Generale on Jan 9, Jan 10 and Jan 18 - the day the bank says it launched an emergency in-house investigation after Kerviel's transactions begin raising red flags.
The sales totalled 140 million euros. Regulators made no allegation of wrongdoing. A lawyer for a group of Societe Generale shareholders has filed a legal complaint asking investigators to look into possible insider trading.
The bank, in a statement on Tuesday, said Mr Day sold the shares during a limited window when board members are authorised to sell stock.
'No inside information was used in any way,' the statement said. 'Mr. Day, like the other board members, was not advised of Mr. Kerviel's trading losses.'
'Bank must have noticed something suspicious'
The 31-year-old junior trader told investigators of efforts to mask his massive transactions, but said his bank must nonetheless have noticed something suspicious, according to the excerpts of his police testimony confirmed by Ms Montagne.
'Since I was generating cash, the signs were not that worrisome ... As long as we are winning and it isn't too obvious, and it's convenient, nobody says anything.'
Kerviel said he had sought a 2007 bonus of 600,000 euros, but was told by a supervisor that he couldn't expect more than a 300,000 euros.
He insisted that his No. 1 concern was 'earning money for my bank' - not personal enrichment. The bank and prosecutors also say he did not appear to have pocketed money from the massive positions he built up in futures on European markets.
Kerviel said the mere fact that he only took four vacation days in 2007 should have been a glaring sign to the bank that he was unwilling to let another trader step in for him.
'The techniques I used were not at all sophisticated, and in my opinion, any correctly conducted check should be able to detect these operations,' he said, according to the testimony in Le Monde.
Kerviel explained away red flags
The bank has acknowledged that Kerviel triggered alarms with his transactions 'from time to time' but also said that he explained away the red flags as trading errors, and that his mistakes did not outnumber those of other traders.
But Kerviel told police that other traders and managers concealed some of their trading practices from the bank, according to MediaPart's account of his testimony, which Ms Montagne also confirmed.
Kerviel claimed that 'several alerts (were) sent to my superiors' in 2007, which he said were e-mail queries about his transactions.
'If you are not spotted, you are not caught. If you are caught, you are hung out to dry,' Kerviel said, according to the account.
Kerviel acknowledged that he purposely deceived his bank to hide his trades. He said he forged e-mails and used colleagues' computer log-ins. He claimed he was 1.4 billion euros in the black by the end of 2007 but didn't know how to explain the huge sum to his bosses - so he hid it with an equal amount of fictional losses.
'I didn't know how to manage it. I am happy, proud of myself, but I don't know how to justify it. So I decided not to declare it to the bank,' he said. 'I admit to having taken big positions, which could be qualified as beyond the limits of my role, that I masked with a fictitious operation.' According to the testimony, Kerviel told investigators that his pattern of hidden trades started with the bet in 2005 on Allianz, apparently referring to the German insurance and banking group. He did not specify which market he bet on, or exactly when it fell.
London's FTSE share index dipped in the immediate aftermath of the bomb attacks.
'I took a position on Allianz, betting the markets would fall.
It just so happened that a little while later, the market fell after the London bombings and it's the jackpot, 500,000 euros,' Kerviel claimed. 'It makes you want to continue, there's a snowball effect.' -- AP
Read BNP evaluating whether to bid for SocGen: source, SocGen employee shareholders start legal action, SocGen backs chairman after trading scandal
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