SocGen Says Rogue Trader Kerviel May Have Had Help

PARIS (Reuters) -Societe Generale trader Jerome Kerviel may have had internal help whenhe built up massive stock market bets that led to the world’s worsttrading scandal, a report published by the French bank said on Friday.

The report also blamed weak supervision and poor control systems forthe rogue trading scandal which shook the world’s banking establishmentearlier this year.

The internal report said Kerviel, the junior trader blamed byFrance’s second-biggest bank for $7.7 billion in trading losses, mayhave been helped by an assistant but added there was no conclusiveproof of this.

"We have discovered indications of internal collusion involving atrading assistant, a middle office operational agent," said the report.

"Due to the current on-going criminal investigation, we have beenunable to question this employee on this subject. The possibility ofsuch internal collusion must therefore be confirmed by the courts," itadded.

The bank has consistently said Kerviel acted alone.

The internal report, the second published by SocGen into thedebacle, said the unidentified assistant had manually entered a largenumber of fraudulent transactions done by Kerviel.

It said the assistant registered "several abnormally highintra-monthly provision flows, without having obtained any validexplanations as to their validity."

It added that the assistant had registered a total of almost 15 percent of Kerviel’s fictitious trades.

MANAGEMENT BLAMED

On Jan 24, SocGen unveiled 4.9 billion euros ($7.7 billion) oflosses which it said were caused by rogue deals carried out by Kerviel.

Kerviel was freed from prison in March after an appeal against hisdetention but he remains under formal investigation for breach oftrust, computer abuse and falsification.

A previous report by SocGen had investigated how Kerviel managed tobuild up a trading position of 50 billion euros – more than the stockmarket value of SocGen — without getting noticed by his managers.

SocGen had highlighted Kerviel’s habit of doing rogue deals onwarrants with a deferred start date, futures contracts and "forwards"deals using a counterparty within SocGen itself.

The latest report on Friday said Kerviel’s direct supervisors lacked the relevant experience for their job.

"The direct supervisor lacked trading experience and was not given a sufficient degree of support in his new role," it added.

The report also said Kerviel’s supervisor "demonstrated aninappropriate degree of tolerance in relation to the taking of intradaydirectional positions".

It said both Kerviel’s direct supervisor and the manager above themcarried out inadequate reviews of Kerviel’s trading activities. Thereport did not name these individuals.

SocGen did not find out about Kerviel’s unauthorized trades untilJanuary 18, even though internal reports from the bank showed thatKerviel had in 2007 raised alarms with derivatives exchange Eurex andbeen the subject of more than 70 "alert" warnings.

The bank’s report said Eurex raised an alarm in November whenKerviel bought 6,000 DAX share futures contracts worth 1.2 billioneuros, betting on a broad rise in share prices, in just two hours.

The losses from the Kerviel scandal have made SocGen vulnerable to atakeover bid and forced the bank to raise 5.5 billion euros in capitalto shore up its finances.

French President Nicolas Sarkozy has also criticized SocGen’sexecutive chairman Daniel Bouton over the affair. Bouton recently gaveup his chief executive position to former SocGen finance directorFrederic Oudea.

SocGen shares closed down 1.5 percent at 66.75 euros, giving the bank a stock market value of around 31 billion euros.

(Editing by Sue Thomas)