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In 2008, Societe Generale reported trading losses of $7.1 billion that the firm attributed to unauthorized activity by a junior trader, Jerome Kerviel. It damaged Societe Generale’s reputation and forced it to raise large amount of new capital. Kerviel took very large unauthorized positions in equities and exchange- traded futures, concealed through fictitious forward starting transactions that offset the risk and P/L of his true trades. He relied on his knowledge of when control personnel would seek confirmation of a forward – dated trade, and cancelled the trade prior to the date of confirmation would be sought. Kerviel had previously worked in the middle office of the firm, which may have provided him with particular insight into the actions of control personnel.
Finally, one of Kerviel’s fictitious trades was identified as fabricated by control personnel as part of routine monitoring of positions, leading to a thorough investigation. Kerviel’s attempts to deflect the inquiry by forging confirmations proved fruitless and eventually led to Kerviel’s downfall in January 2008.
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