The special board committee which is investigating the $7 billion trading fraud at Société Générale issued its interim report today. What stands out is the conclusion found at point 9 of the English summary.
9. The author of the fraud began taking these unauthorised directional positions, in 2005 and 2006 for small amounts, and from March 2007 for large amounts. These positions were uncovered between January 18th and 20th 2008. The total loss resulting from these fraudulent positions has been identified and amounts to 4.9 billion euros, after their unwinding between January 21st and 23rd 2008.
What the board is admitting is that a lone trader, and a fairly junior one at that, was able to hoodwink the entire internal control and security apparatus of one of the largest and most respected banks in Europe from 2005 until January of 2008. Do they really think these findings will arrest the fears of the investing public and restore faith in the bank? Far from getting management and the board off the hook, the report serves as a stinging self-indictment of a financial institution that was so inept in its security it might as well have left the keys to the vault on the cafeteria table.
But there is more.
10. The General Inspection department believes that, on the whole, the controls provided by the support and control functions were carried out in accordance with the procedures, but did not make it possible to identify the fraud before January 18th 2008.
Controls were carried out in accordance with zee procedures? Allo? Eez anybody hat zee home? Surely Inspector Clouseau had some part in this investigation. The controls worked –except for the fact that $7 billion was lost. Does somebody fall down the stairs next or have their false nose go up in flames? This is a Blake Edwards production if ever there was one.
Nice to have you back, Monsieur. We look forward to zee next hact.