Who Is Really to Blame?

Yesterday, the infamous Jerome Kerviel was sentenced to three years in prison and ordered to repay the estimated €4.9 billion that the French financial institution Société Générale lost as a result of his failed derivative trades. What is surprising to many who have weighed-in on the verdict is the fact that the sole blame for the massive losses has been placed on the young trader.  Here’s one common view as reported in the New York Times.

“It’s a whitewash,” Bradley D. Simon, a white-collar criminal defense attorney at Simon & Partners in New York who specializes in securities and bank fraud, said of the verdict. “The evidence does not support absolving the bank completely,” he said. “This was a lot larger than Kerviel.”

Société Générale had admitted to management failures and weaknesses in its risk control systems. An internal audit published in May 2008 described Mr. Kerviel’s immediate supervisors as “deficient” and acknowledged that the bank had failed to follow through on at least 74 internal alerts about Mr. Kerviel’s trading activities dating to mid-2006.

While an appeal of the verdict is virtually guaranteed, the larger question remains. How can a situation like this unfortunate one be prevented in the future?  The answer certainly begins with stronger risk and control programs as demonstrated by the numerous weaknesses found at Société Générale.

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About Wheelhouse Advisors
Wheelhouse Advisors LLC is the publisher of The ERM Current™, an online publication and blog dedicated to providing the latest updates on current trends in Enterprise Risk Management & Control. Wheelhouse Advisors provides cost-effective Enterprise Risk Management & Control solutions to both large and mid-size corporations. To learn more about Wheelhouse Advisors, please visit our web site at www.WheelhouseAdvisors.com.

2 Responses to Who Is Really to Blame?

  1. Pingback: World Wide News Flash

  2. Pingback: Who Really Is to Blame? | ERM Strategies

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