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  • Michael Rosen Michael Rosen
  • Investment Insights are written by Angeles' CIO Michael Rosen

    Michael has more than 30 years experience as an institutional portfolio manager, investment strategist, trader and academic.


Published: 06-07-2016

I’m not French, and I’m not a lawyer. So I am certainly not a French lawyer. These facts may be obvious, but I state them as a possible explanation for my lack of understanding the (tortured) logic in a Paris courthouse today.

A long time ago, in another time and place (2007 Paris, to be precise), there was a junior trader at a venerable bank (Société Générale, founded 1864 under charter granted by Napoléon III) who was supposed to be arbitraging the spread between equity cash and futures. Not a very sexy job, and one better suited to computers than humans (which it is today), but for this junior trader from Brittany, whose mother was a hairdresser and father a blacksmith, this was a very lucrative job.

Somehow, this young man, Jérôme Kerviel (photo below), ran his positions up to €50 billion, and losses mounted to  €4.9 billion (about $7 billion), before the bank removed him from the trading desk. It more than wiped out the bank’s capital, and nearly brought it down.


The bank brought charges in 2008, and Kerviel was convicted in 2010 of abuse of confidence and illegal use of computers. The more serious charge of fraud was dismissed. Kerviel claimed his managers knew what he was doing (how could they not? he said), and that he was a scapegoat for the massive losses the bank had in its mortgage portfolio (that’s plausible, but hardly an excuse). He was sentenced to five years in prison. Two years later, a court upheld the conviction and sentence, and required him to re-pay the  €4.9 billion he lost the bank. In 2014, another court upheld the sentence but removed the  €4.9 billion fine (whew!).

So, all this is (maybe) an interesting historical footnote, with M. Kerviel now out of prison and looking for gainful employment. He is appealing his conviction, of course, but he also sued Société Générale for unfair dismissal. One might think that case a joke, but today, a labor court ruled that, indeed, Société Générale fired him unfairly, “without genuine or serious cause,” in the judge’s words, reasoning that his termination was not due to his actions, but to the consequences of his actions. The bank, in the court’s opinion, fired Kerviel not for illegally using computers but for losing €4.9 billion, which (apparently) is not a fire-able offense. For good measure, Société Générale was also ordered to pay him €450,000. So, it is now established that you can’t be fired for losing your employer €4.9 billion, at least in France.

There’s a long list of things in this world I don’t understand. That list just got a little longer today.

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