Exclusive: the dramatic new evidence set to reopen SocGen 'rogue trader' Kerviel case

LastLast month, Nathalie Le Roy, former head of the French police financial crime squad (la brigade financière), arrived for questioning at the central Paris offices of Judge Roger Le Loire. By the time she left, the verdict in the case of one of the world’s biggest-ever trading scandals was placed in serious doubt.

In January 2008, Commander Le Roy was assigned to lead the police investigation into the official complaint lodged by the Société Générale bank that it had lost 4.9 billion euros through the actions of a rogue trader, Jérôme Kerviel. By the end of her investigation, Le Roy was convinced that Kerviel had run up the losses in operations that he hid from his superiors, gambling fortunes in reckless trades.

Kerviel was charged with forgery, breach of trust and fraudulent use of the bank’s computer systems and was found guilty and sentenced in 2010 by a Paris court to five years in prison – two suspended – and was ordered to pay the Société Générale damages and interest of 4.9 billion euros. Kerviel, who has always maintained that the bank knew what he was doing, lodged an appeal, but the sentence was upheld in a ruling in 2012. After a subsequent and final appeal, the jail sentence was last year upheld but the amount of the damages was overturned, and a new sum is yet to be fixed by the Versailles appeals court.

Kerviel, now 38, was jailed last May and released on parole in September, when he was ordered to wear an electronic tag.

Commander Le Roy (whose rank is equivalent to a British chief inspector) was appointed in 2012 to lead another police investigation into the affair, this time into complaints lodged by Kerviel against the bank, for forgery and use of falsified documents, and for obtaining a ruling under false pretences. The complaints were subsequently thrown out by the Paris public prosecutor’s office, but after Kerviel lodged an appeal against that decision they were submitted to Judge Roger Le Loire, an independent examining magistrate.

It was for that reason that he summoned Le Roy for questioning on April 9th this year. Le Roy, who is no longer head of the financial crimes squad, told the judge how, during her 2012 enquiries, she came to doubt the conclusions of her 2008 investigation.

“With the different statements and the different documents I had in my hands, I had the feeling and then the certitude that the hierarchy above Jérôme Kerviel could not have been unaware of the positions taken by the latter,” Le Roy told the judge in her statement,  Mediapart can reveal.

It was the first time Le Roy had made known her change of opinion. “I never manifested myself so as to not interfere with the course of justice, but I admit that my summons today brings me relief,” she said in her statement. “For a long time I put myself in question.”

Le Roy described how the 2008 investigation had been completely taken over by the Société Générale, with the bank imposing its own version of events, choosing who would reply to questions, reportedly placing pressure on witnesses, but also, during her 2012 investigation, refusing to hand over requested evidence.

She also spoke of the strange attitude of the public prosecutor’s office in its handling of her investigation into Kerviel’s complaints against the bank; despite the fact that Le Roy voiced her doubts to the prosecutor’s office about the case against Kerviel as a lone, rogue trader, despite the witness statements she collected that supported her doubts, and despite the requests she made for further expert reports during that second investigation, the prosecutor’s office closed her investigation and base its conclusions on the Société Générale’s version of events.    

When the bank’s losses were first revealed in the early hours of January 24th 2008, the Société Générale set out its own account of events with force, of how it had fallen victim to a rogue trader, a person who worked on his own, playing with billions of euros without the knowledge his hierarchy, despite all the controls in place. The bank’s then chairman, Daniel Bouton, was swift to announce, and before all the trading operations had been completed, that Kerviel’s extravagant behaviour had cost the bank losses of 4.9 billion euros. The Société Générale has never wavered from its initial version of events, including the amount of its losses.

All of those witnesses who had questioned the bank’s version of events, who demonstrated that the functioning of markets and the banking world made it impossible for the Société Générale not to have known anything of what was going on, were ignored – and some were denigrated. There were even cases of Société Générale employees who lost their jobs for having contradicted the bank’s official line. One of them was Philippe Houbé, who worked at its brokerage arm Fimat (which merged into Newedge Group) and who testified at Kerviel’s  appeal hearing in 2012.

But the emergence of Nathalie Le Roy’s statement to Judge Roger Le Loire last month will be less easy for the bank to dismiss. She is a respected police officer among both her former colleagues at the financial crimes squad and the judiciary; recognised for her diligence and competence, Le Roy has led a number of notably difficult investigations which have won her respect among examining magistrates.

One of those is Eva Joly, a former French examining magistrate and judge with the Paris high court who has led a number of successful high profile political and business corruption investigations, for which she has won international recognition (see here, here and here). “I had worked with her on numerous investigations,” Joly told Mediapart. “I know her professionalism.”

The mystery of the doctored tapes

“I had the feeling of having been being used by the Société Générale,” Le Roy told Judge Le Loire. She admitted that when she was handed the investigation, on January 24th 2008, she had insufficient knowledge of the world of trading.

The Société Générale took matters in hand, guiding the financial crime squad detectives through the jungle of high finance. “I first had Madame Dumas [Editor’s note: deputy to the head of operations at The Global Equity and Derivitives Soltions unit, GEDS, where Jérôme Kerviel worked] questioned by my colleagues,” Le Roy recounted to the judge. “Jérôme Kerviel’s computer had already been put to one side […] It might have been studied, but that I don’t know […] All the documents that were required from the Société Générale in this investigation were given to us by the latter because we didn’t have the computer equipment […] It was the Société Générale itself who addressed to me the people that it judged should be questioned. I never asked ‘I would like to question such and such a person’. It is the Société Générale who sent to me all the witnesses.”

“It was quite a comfortable situation,” she added.

The witnesses questioned by the French police spoke with the Anglophone jargon of their trade, referring to “short” and “long” positions, of “calls” and “pending” operations, the “Eliot” system and click options. But they did not detail the important elements of financial operations, the margin calls or the effects of positions on the day-to-day treasury, nor did they mention the email archiving system run by US firm Zantaz, via which emails relative to the case could be recovered, or the German derivatives exchange Eurex which was the main market used by Kerviel. All of these could have provided records of the movements and counterparties to operations carried out by Kerviel.

All the witnesses questioned by Nathalie Le Roy’s police team gave credence to the picture of Kerviel acting as a solitary trader, one who could place 50 billion euros - more than the bank’s market capitalisation – in speculative operations and behind everyone’s backs.

Kerviel challenged that suggestion as of the very first moment he was questioned, on January 26th 2008. “Already, at the time, he developed the theory according to which had effectively taken positions that he was blamed for, this in the full knowledge of his hierarchy, which he has always maintained?” Le Roy told Judge Le Loire.

The financial crime squad had been appointed to the case by the public prosecutor’s office in charge of the preliminary investigation opened at the start. Under the French legal system, if the preliminary investigation finds sufficient evidence of a crime, a judicial investigation is opened under the leadership of examining magistrates. In this case, the judicial probe was handed to judges Renaud Van Ruymbeke and Françoise Desset, under who Le Roy and her team continued their investigations.

They were under pressure to finish the job rapidly; as of March 2008 both the French commission that was then in charge of regulating the banking industry, la commission bancaire, and a report by the finance ministry inspectorate – ordered by then economy minister Christine Lagarde (now IMF chief) - had concluded that the Société Générale was entirely the victim of Jérôme Kerviel’s actions.

In October 2008 the judicial investigation was completed. “Of the mass of evidence that we collected - given the urgency, taking into account the small numbers of the team and the great amount of work that there was to do - some wasn’t examined,” Le Roy told Judge Le Loire in her April statement.

She said that expert equipment was needed to study some of the evidence, which the police relied upon the Société Générale to provide. But not only expert equipment: “As an example, the discussion that was held between Jérôme Kerviel and his superior hierarchy after the events [trading losses] were discovered - from memory that should have been the 20th and 21st of January 2008 – all the recordings that were made in that room were transcribed in writing by the Société Générale,” Le Roy told the judge.

Judge Van Ruymbeke, in charge of the 2008 judicial investigation, and the president of the  Paris criminal court, Dominique Pauthe, refused permission for Kerviel’s defence team, then led by the late Olivier Metzner, to have access to the unexamined evidence. That access was finally granted just weeks before the opening of Kerviel’s 2012 appeal against his conviction in 2010, but there was not enough time for it to be studied and used at the appeal hearings.

Kerviel’s current lawyer, David Koubbi, later discovered that some of the unexamined evidence included a computer of Kerviel’s and email correspondence. Koubbi also found the 45 tape recordings of the meetings between Kerviel and his superiors - as referred to by Le Roy but which in fact took place on the weekend of 19th and 20th January 2008 - when the bank’s management said they discovered for the first time what had been going on. Koubi found that the tapes contained blanked-out segments which had not been indicated in the transcripts which the bank provided to the police. In all, the cut-outs represented a total of two hours and 45 minutes of the conversations (see Mediapart’s detailed report on this here). Meanwhile, Jean-Pierre Mustier, then the bank’s number two and head of its corporate and investment division, can be heard on the recordings saying: “I have lost one billion on subprimes”.

A warning email marked with a skull

In her statement to Judge Roger Le Loire on April 9th this year, Nathalie Le Roy recalled how she had been certain in 2008 that Kerviel was alone guilty of incurring the losses. “With the investigation wound-up, I made out my synthesis report incriminating Jérôme Kerviel, while also highlighting the failings and dysfunctions within the Société Générale,” she said. “We were in 2008. I was convinced of Jérôme Kerviel’s guilt, and of the veracity of the collected witness statements.”

Le Roy recalled how she had become keenly engrossed in the case, and had attended all the hearings of the 2010 trial.

But her doubts about her earlier conclusions in the case began in 2012, when Kerviel filed two complaints against the bank for forgery and use of falsified documents, and for obtaining a ruling under false pretences. Nathalie Le Roy was handed the investigation into the complaints by the Paris public prosecutor’s office, which would then decide if they warrented a judicial probe.

It was during her enquiries that Kerviel’s lawyer David Koubbi asked her whether she would accept that he provide her with evidence and witnesses even if these might contradict the findings of her initial investigation. She told Judge Le Loire that she had told Koubbi she would “do my duty and question all the witnesses it is necessary to question”.

Koubbi had collected a number of witness accounts to support Kerviel’s case. After the trader was convicted in the first trial in 2010, and again in the second trial held in 2012, following his appeal, some were pushed by conscience and indignation to come forward. These included former traders and bankers, even some who had no link with the Société Générale, for whom the bank’s version of events was quite simply impossible to believe. They gave detailed accounts of the functioning of the trades markets, the controls employed and the outside counterparties. All offered the same conclusion, which was that Kerviel’s superiors would have known about the considerable positions he took (see the account given to Mediapart by one of Kerviel’s former colleagues).

“It was clearly known on the market because he was nicknamed by some traders as ‘the biggy’”, Le Roy told Judge Le Loire. Former and current Société Générale employees also came forward to explain that everyone knew of Kerviel’s practices. Le Roy said some accepted to give statements in their own names, while others asked to be given anonymity.  

Le Roy told Judge Le Loire of the account given to her by Florent Gras, a former Société Générale employee. “He straight away told me that the activity of Jérôme Kerviel was known, that he himself alerted Madame Claire Dumas who was his hierarchical superior,” said Le Roy. “He told me he sent the latter and to others an email with a skull [sign] to draw their attention.” Gras told her that this was sent in April 2007, more than nine months before the Kerviel scandal broke. “I had asked the Société Générale for the extraction of the emails of Florent Gras, and the email in question didn’t figure among them. Which is the reason for the judicial demand of November 10th 2012 addressed to [Société Générale chairman and CEO] Monsieur Oudea to obtain the extraction of the email messages of Madame Dumas, targeting her exchanges with Florent Gras, and which received no follow-up.”  

The Société Générale never replied to that demand by the financial crime squad, nor did it comply with the squad’s demand for copies of the email correspondence of other senior staff at the bank, just as it ignored other requests. Apparently it was keen to avoid this fresh investigation in 2012, when its stance as a victim of financial crime had been recognised by the 2010 trial, and while the judicial procedure of Kerviel’s appeal was ongoing with a ruling in the autumn.    

But the bank was not alone in its reluctance for a re-examination of the Kerviel case. The Paris public prosecutor’s office, on whose behalf Le Roy was investigating the complaints lodged by Kerviel, also did its utmost to definitively bury the affair.

With the accumulating evidence and witness statements suggesting that the Société Générale was in fact not the simple victim of Kerviel’s actions, Nathalie Le Roy spoke with her superiors of her growing doubts about her original conclusions in the case. Her superiors, she told Judge Le Loire, reassured her that she had led her initial investigation “according to the elements that were communicated to her”. She also alerted the public prosecutor’s office, and requested authorization to carry out expert examination of the January 2008 recordings of the meetings between Kerviel and his superiors, and for a request to be lodged with the US authorities for access to the email archives stored by Zantaz.

But the Paris public prosecutor’s office turned down her requests and decided to throw out Kerviel’s complaints. It did so even before Le Roy had drawn up the synthesis report of her investigations.

The public prosecutor’s office clearly felt an urgency to close Le Roy’s investigation, which it did in October 2012 just days before the appeal court’s verdict on October 24th. In the event, that ruling confirmed the original verdict and sentencing of the 2010 trial which concluded that Jérôme Kerviel was, alone, responsible for the losses incurred by the Société Générale.

French public prosecutors are answerable to the justice ministry and therefore, unlike examining magistrates, their hierarchical superiors are the ruling political powers. The behaviour of the public prosecutor's office raises grave questions, including whether it received an order, one which protected the interests of the banking world above those of the proper course of justice.

The bank's claimed losses were never verified

The decision by the Paris public prosecutor’s office to throw out Kerviel’s complaint was disturbing for Nathalie Le Roy. She was present during the hearings of the appeal trial, when she met with several traders who expressed outrage at the treatment meted out to Kerviel. She told Judge Le Loire of how she was particularly struck by a conversation she witnessed, at the end of the trial, in the corridors of the Paris court house.

“During the deliberation, in the corridors, I witnessed a conversation with a woman who presented herself as being still in the Société Générale’s human resources [department], who therefore could not manifest herself, and who said that she was appalled that Jérôme Kerviel was made the fall guy,” she said in her statement to the judge. “Not knowing how to take her comments, I presented myself to her as the Commander of the financial crime squad. She said her name was G.C. […] While being aware of my position, she went even further by explaining to me that in January 2008, after the events were discovered, Frédéric Oudea, who was at the time financial director, ‘sequestrated’ a certain number of managers in order to make them sign an undertaking of confidentiality regarding all that they could have learnt about, and that they even undertake not to talk about it to their spouses. From what she said to me, most of the people signed that undertaking.”

Mediapart has been told that other witnesses were also present during the conversation.     

Le Roy gave the woman her phone number. “She called me,” Le Roy told the judge. “We met up and she told me she was reflecting on whether she was ready to give a statement, but anonymously. I never heard anything further.”

The accusation that Frédéric Oudea, now chairman and CEO of the Société Générale, had put pressure on employees so that they would not speak was not the first time that it had been suggested the bank had gagged its staff. During Kerviel’s second trial, one of his superiors, Martial Rouyère, was called to the witness stand. Rouyère had been sacked following the scandal, but it emerged at the trial that he was also given a bonus equivalent to seven years’ of his salary.

“Is that the price of silence?” asked the court president, Mireille Filippini.

“The fact that you sign an agreement like that only ties you if you don’t want to suffer the consequences,” answered Rouyère.

“What happens if you talk?” asked Kerviel’s lawyer David Koubbi.

“I must give the money back,” answered Rouyère.

But that revelation appeared to have no effect on the presiding magistrate. Rather than push forward with the subject, Filippini ended the exchange there.

As the supposed victim in the case, the Société Générale’s behaviour was, at the very least, odd: it refused to hand over evidence requested by the police, while happily providing evidence it had itself selected; it gave a golden payoff to a potential key witness it had sacked, and allegedly made other employees sign confidentiality agreements.

“In the framework of the procedural functioning of this investigation, I was astonished that it had never been possible to obtain an expert report on the amount of losses declared by the Société Générale,” Nathalie Le Roy told Judge Le Loire. That is one of the key issues in this vast case. The bank’s losses are those – and only those - which it has itself claimed to have incurred, and which was accepted at face value by the magistrates in the first two trials, when Kerviel was sentenced to pay the same amount,4.9 billion euros, in damages and interest.

 “An expert report should be asked for in order to be certain that the losses declared are in their totality linked to Jérôme Kerviel’s operations, to find out what are the counterparties in the closing out of positions," Le Roy advised in the conclusion of her statement to the judge in April. “Because if the Société Générale lost the 4.9 billion [euros], there is necessarily someone who benefitted.”

Until now, the mystery remains whole. Officially, no-one has gained anything from the Société Générale's losses, and no-one has claimed to have made substantial profits from the operations Kerviel was involved in. It is as if the 4.9 billion euros the bank lost have simply vanished into thin air.

In March 2008, two months after the scandal broke, the French finance ministry, without waiting for a conclusion of the judicial investigation or an eventual trial, and on the basis of a report into the events by its finance inspectorate, gave the Société Générale an additional tax break of 1.7 billion euros for its 2007 returns.

The present from the public purse was swiftly consumed. During 2008, while the Société Générale had been badly hit by the subprime crisis, the bank handed out to its shareholders 420 million euros in dividends – equivalent to 45% of its profits – and spent 1.2 billion euros in a buy-back of its own shares.

-------------------------

• The French version of this article can be found here.

English version by Graham Tearse