here's another story of fraud..this guy, Jerome Kerviel is 31 & knows his way around..how could he have created such huge losses for a second largest bank in France - Euro 3.6bn? According to the newspapers, he had set up this postions secretly! He had gone above permitted limits, but how is that possible? don't they have monitoring systems in place?
Société Générale had its shares suspended on 24th Jan, said it had "uncovered a fraud, exceptional in its size and nature: one trader, responsible for plain vanilla futures hedging on European equity market indices, had taken massive fraudulent directional positions in 2007 and 2008 beyond his limited authority."
He was employed to take out insurance policies (plain vanilla futures hedging), but used the funds in to make big bets instead.
More on this at:
http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2008/01/24/bcnsocgen624.xml, http://news.xinhuanet.com/english/2008-01/28/content_7510364.htm and
http://www.telegraph.co.uk/money/main.jhtml;jsessionid=3NIW2OJZDMBQ1QFIQMFCFFOAVCBQYIV0?xml=/money/2008/01/24/bcnguide.xml
There goes their Risk Management systems...this is scary ok...here I am doing work which is important & dun even know how important it is, until this kinda thing creeps out...
Lets look at the history of frauds:
The 20 biggest trading disasters
Société Générale
2008 Lost 4.9 billion euros ($7.2bn) before taxes after trader went beyond permitted limits on European stock index futures
Bank of Montreal
2007 Wrong-way bets on natural gas led to a pretax loss of about c$680 million ($663 million)
Amaranth Advisors LLC
2006 Trader Brian Hunter's bad bets on natural gas triggered $6.6 billion of losses
Refco Inc. 2005
Declared bankruptcy after hiding $430 million of debt
China Aviation Oil (Singapore) Corp.
2004 Lost $550 million on speculative oil-futures trades, forcing debt restructuring
Allied Irish Banks Plc
2002 Trader hid $691 million in currency market losses
Plains All American Pipeline LP
1999 Lost $160 million because of unauthorized crude-oil trading by an employee
Long-Term Capital
1998 Lost $4 billion after a debt Management default by Russia
Peregrine Investments Holdings Ltd
1998 Collapsed from at least $300 million of debt bought from insolvent companies
National Westminster Bank Plc
1997 Disclosed $125 million charge to cover options-trading loss
Deutsche Morgan Grenfell
1996 Fired fund manager Peter Young for unauthorized trading and paid $279 million to bail out investors
Sumitomo Corp.
1996 Disclosed a $2.6 billion loss on unauthorized copper trades by Yasuo Hamanaka
Daiwa Bank
1995 Disclosed a $1.1 billion loss from unauthorized trades
Barings Plc
1995 Collapsed after trader Nick Leeson racked up $1.4 billion in losses
Orange County, California
1994 Lost $1.7 billion from debt and derivatives used to expand its investment fund
Kidder Peabody & Co.
1994 Took a $210 million charge to reflect what it said were false bond trading profits by trader Joseph Jett
Codelco
1994 Trader Juan Pablo Davila lost more than $200 million speculating on copper
Metallgesellschaft AG
1993 Lost more than $1.5 billion trading oil futures contracts
Drexel Burnham Lambert Inc.
1990 Filed for bankruptcy after pleading guilty to charges of insider trading and stock manipulation
Merrill Lynch & Co.
1987 Mortgage trader accused of racking up $377 million loss in unauthorized trades
Source: Bloomberg
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