Remember Jérôme Kerviel ? OK, very excusable if you have forgotten who he is. He was the rogue trader who almost brought Société Générale ( a reputed French bank) to its knees. This happened in 2008. Kerviel was a trader who punted like crazy in the casino, that is euphemistically called financial markets - he was making gigantic bets that involved European stock index futures. The whole thing unraveled, he was fired, Société Générale tottered and ultimately lost € 4.9 bn.
Criminal proceedings were launched against Jérôme Kerviel and he was sentenced to prison and a fine. He appealed, and, on Friday, lost his appeal. What caught me was the quantum of the fine. He was fined € 4.9 bn, the quantum of the loss that Société Générale incurred. A fine of € 4.9 bn ???? Kerviel has no money and is unemployed and probably unemployable. How on earth is he expected to pay € 4.9 bn ?
This is outright crazy. The judges have fallen hook line and sinker to Société Générale's assertions that it didn't know what was happening and that Kerviel acted alone. PPPPlease ........ That, to put it mildly, is nonsense. His bosses must have been cheering loudly as long as he made profits and have thrown the book at him, when the whole thing collapsed. The bank didn't know ??????? Baloney.
Société Générale , and the judge, argue that the massive fine is to prevent him from capitalizing on his story by writing a book (which he has done) or making a movie. That is extreme logic. Every crook tries to make money from his infamy. Jeffrey Archer wrote a whole book about his prison experience and sold God knows how many copies. The fault is not that of the crook - the fault is with those who buy the book or go see the movie.
Kerviel is not your ordinary villain. Sure he broke company rules and did unauthorized trading. But then a few thousand bankers have done the same . He made no money personally - even his bonus wasn't obscene. He was a case of gambling instincts gone completely out of control. Does he deserve a € 4.9 bn fine ?
The logic that employees are personally responsible to make good the losses that arise if they violate the rules is a dangerous one. Sometimes company rules are not explicit. Sometimes bosses nod and wink when they expect employees to do things that are shall we say, fifty shades of grey ! If I were to calculate the possibility of personal liability, when taking a business decision, I would never make a decision in the first place. Something like this is what is happening in Indian government circles today - no babu is making any decision for fear that Kejriwal will allege that he is corrupt. Everything has ground to a complete halt.
It is a reflection of the anger against bankers that public opinion has no sympathy for Kerviel. Nobody, but a few busybodies have raised a whimper. I however think this is an outrageous court decision. Kerviel deserves to be punished. He deserves to go to jail. But he should not be fined € 4.9 bn.
It is a mark of civilized society that even crooks are given a fair deal.
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18 comments:
Did i just read that Archer is a crook and it was our fault to buy his book?[I havent read the prison diaries]
I agree with all other stuff and like the kejriwal comparison!
hahaha...imagine spectrum spectaculars being fined 1.6 lakh crore in penalty :D:D they wud still have few crores pocket money left though...namma ooru kejriwal anti corruption..french kerviel ivaroda evil twina iruparo?
@Zeno - Not his earlier books, but the prison diaries certainly. He is perfectly entitled to try and make money and , being a writer, that's even more natural to write a book about being in jail - but surely we have the choice to buy it or not buy it. If we buy, we shouldn't grudge him the money.
@Gils - Only you can think of Kerviel being the evil twin of Kejriwal :):)
So, what happens when he doesn't cough up that money, even after the prison term? After all, there are very few individuals who can come up with that kind of money, and he ain't one of 'em ...
Hey, an Indian-American banker made the news here over the last few days, and I was hoping you would write about ... Goldman's (McKinssey's) Gupta. Ok, Gupta is not a banker per se ... but, hey, close enough. We have rogue Indian-Americans too (not me!!!) ... Gupta will be in for about the same time as this French dude you write about ...
Fall guy!! ha ha!!
PS: No Indian babu has ever made decisions. They still rely on provisions of various acts enacted from circa 1857 governing everything from permitted length of pencils to bandwidth on internet.
Fall guy!! ha ha!!
PS: No Indian babu has ever made decisions. They still rely on provisions of various acts enacted from circa 1857 governing everything from permitted length of pencils to bandwidth on internet.
@sriram -Oh too much has been written about Rajat Gupta, that its not worth writing anymore. Of course Kerviel can't pay the fine, but Soc Gen is being really vindictive in making sure that anything he earns over his lifetime goes to them.
@Kiwi - Fall Guy no; but certainly he has been dealt badly. Indian babus do take decisions like saying No. Now, they are not even doing that. Mouna Virutham !!
"crazy in the casino, that is euphemistically called financial markets" absolutely love this line.
I think that this is a pathetic judgement and assessment of the situation. I mean the shot in the arm needs to be given at the organizational culture at the banks. I really find it hard to believe that somebody in the bank was doing this and nobody knew about it. If that is the case then the risk procedures at the bank are seriously compromised.
Hmm in the french world, your blog might make sense,but I would never apply this in the Indian context where crooks usually have all the money squirreled away in tax havens and the price of every crooked scam is paid for with tax payers money!! Crooks in India i wish wld have a harsher law!!!
@Prats - Very true - you have hit the nail on the head. The real problem is the organisational culture at banks.
@Shy - Very understandable point of view, but even in the Indian context, there should be fairness. By all means , jail those involved in scams, but would it be right for example to jail the babu, but let the minister go scot free ?? His bosses at Soc Gen escaped lightly, but he got screwed.
Is your objection to sentencing him to lifelong bankruptcy or the specific dollar amount. The specific dollar amount is more to make a statement, I think. After a point, I cant wrap my mind around the additional zeros especially when you are speaking in the context of an individual. As for the perpetual bankruptcy, again I think there is no outrage because people want some concrete examples of penalties, hoping that it would deter future Kerviels. I hear what you are saying but somehow cant find it in me to feel sympathetic. What kind of a horrible cold-hearted person does that make me :(
@J - My objection is to both. I can understand your sentiment - that's the natural reaction to white collar crime, especially by the "rich". I am all for punishment - I am not a bleeding heart liberal by any means - but this is too much.
So I kept thinking about this post even after I had posted my first gut reaction. And it made me wonder if this was the financial penalty equivalent to public flogging or the guillotine where everyone supposedly got a sense of satisfaction from "justice" being served. I can clearly see that as being barbaric and do not condone physical punishment of any sort. But I kept thinking that surely a financial penalty is not the same as a physical penalty but the niggling discomfort in that comparison is the vindictive nature of both types of punishment and I have to agree that justice cannot be vindictive. So then the issue (in my head) was whether Kerviel's punishment is vindictive and ... now I see your point. Good post.
@J - You summed up the point better than I can. Elegantly put.
I guess punishment and penalty dont go hand in hand any more.
Penalty is no longer a form of punishment but a form of compensation and hence in this case the most logical compensation.
If the intention was to punish and prevent, the trial would have redirected to investigate the Governance at grass root levels. what would have sent the system rocking, would have been, if starting from the board of the Society Generale to the middle management (any one who has authority to have prevented what happened) including the banking regulators had been pulled up. but this was more to cover with what is politically the right thing to do.
thanks for this thought provoking post.
The judge could have come up with something very different: the "compensatory damage" of throwing the rogue banker in prison, and a "punitive damage" of those gazillions not on the individual but on the bank itself. It is the punitive damage on the individual banker that is bizarre ...
And maybe it was to avoid the punitive damage that the bank made sure to portray that the institution had nothing to do with this and it was all that individual's fault.
But then ... after reading a piece like this one (http://www.theatlantic.com/business/archive/2012/11/meet-the-most-indebted-man-in-the-world/264413/) I wonder if he was indeed a rgoue trader who was way out there that it was difficult for his own bank to catch up to him. And, in that case, such a seemingly ridiculous multi-billion dollar fine is ok?
I tell ya, life is easier when not thinking about all these :)
@sriram - I am honoured that my posts interest you enough to read about them, although this is not your field. Just speaks volumes of your inquisitiveness and willingness to read. Bravo.
I've worked in business for long. One thing I can tell you with absolute confidence - these sort of things can never be done by one man alone and without anybody else knowing it. That is complete bullshit. Others know and often turn a blind eye as long as the person is making money. When he looses, they claim no knowledge. The judge in this case fell for it hook, line and sinker.
@Sandhya - Very true - politically correct thing to do to throw the book at a rogue trader. But I find difficult to comprehend is how Soc Gen got away with it, given that it is even more politically correct to bash banks.
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