SocGen- Jerome Kerviel

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Societe Generale- Rogue Trader

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SocGen- Jerome Kerviel

  1. 1. Sign in to begin:<br />Password<br />User<br />Sign in<br />1<br />
  2. 2. SocieteGeneraleThe Company<br />INTRODUCTION<br />Global Presence with over<br />20 million customers worldwide<br />Founded in 1864<br />Core Businesses:<br />Corporate + Investment Banking<br /> Retail Banking<br /> Global Investment Services<br />Over 130000 employees<br />2<br />
  3. 3. SecurityBasics<br />INTRODUCTION<br />Common Security Breaches:<br />Viruses<br />Spyware<br />Phishing/Spoofing<br />And over 1 million malware<br /><ul><li>Let’s Compare!</li></ul>3<br />
  4. 4. 1. Name: Jerome Kerviel<br />Age : 31 years<br />2008 FLASHBACK: ROGUE TRADER<br />Education: Masters of Finance, University of Lyon<br />Starting Position: Risk Management Office “The Mine”, Back-office systems & security systems<br />Ending Position: Lower-level trader, Delta One- Trade index futures as a way to hedge company risk and make small profits <br />Co-workers’ impressions: “quiet and unassuming trader”, “unimpressive education background”, “motive to impress his seniors”<br />4<br />
  5. 5. 2. Job Role: Purchase European stock<br /> index futures<br />And sell others as a hedge.<br />Job Goal: Create small, low-risk <br />profit stream based on<br />Large volume. <br />2008 FLASHBACK: ROGUE TRADER<br />3. What Kerviel Actually Did: Bypassed all internal controls and made high risk unauthorized trades for a total of $87 billion in trades.<br />He bypassed controls by creating fictitious trades in “trading book” to offset his trades. <br />5<br />
  6. 6. 4. HOW DID HE BYPASS CONTROLS:<br /><ul><li>Learnt internal controls in starting position in back-office</li></ul>> Exactly knew the internal checking schedule and removed all false transaction in books minutes before check.<br />2008 FLASHBACK: ROGUE TRADER<br />5. Used other employees passwords.<br />Took minimal vacation days.<br />Supervisors ignored over 75 trade errors.<br />6<br />
  7. 7. “A cocktail of IT failures”<br />System Vulnerabilities<br />IT controls including:<br />General Controls<br />Application Controls<br />Security Policies<br />KEY CONCEPTS<br />7<br />
  8. 8. System Weaknesses<br />CONTROL FAILURE<br />Management | Organization | Technology<br />Unauthorized Access<br />Internal Control Breach<br />Managers’ failure to identify key errors<br />8<br />
  9. 9. Responsibility for losses<br />“THE BLAME GAME”<br />Kerviel’s ethical misconduct<br />Failure of internal controls<br />Management and Supervisors<br />IT Audit Controls<br />9<br />
  10. 10. Fraud Prevention Techniques<br />PROACTIVE PREVENTION<br />Randomize internal checks<br />Track changes in trading books<br />Effective Supervision and Reviews<br />Mandatory Vacation Days<br />10<br />
  11. 11. Fraud Prevention Techniques<br />PROACTIVE PREVENTION<br />Access Controls:<br />Biometric Sensors<br />Token fob-key<br /><ul><li>Management Training:
  12. 12. Understand importance of data security
  13. 13. Actually follow Company policies</li></ul>11<br />
  14. 14. Fraud Reaction Techniques<br />REACTIVE PREVENTION<br />Crucial to appropriately act upon fraud within company<br />Conduct strict management reviews<br />Conduct audit on internal controls and responsible management<br />12<br />
  15. 15. Redesigning Internal Controls<br />CONTROLS REDESIGN<br />13<br />
  16. 16. Allen, P. (2008, January 28). Jerome Kerviel behind SocieteGenerale fraud. Retrieved July 4, 2011, from The Telegraph: http://www.telegraph.co.uk/finance/newsbysector/banksandfinance/4667707/Jerome-Kerviel-behind-Societe-Generale-fraud.html<br />Gauthier-Villars, D. (2010, October 6). Rogue French Trader Sentenced for 3 years. Retrieved July 4, 2011, from Wall Street Journal: http://online.wsj.com/article/SB10001424052748703726404575533392217262322.html<br />Hurst, A., & Leveque, T. (2008). "SocGen Discloses Details". Retrieved July 4, 2011, from Market Watch: http://www.marketwatch.com/story/societe-generale-traders-named-as-jerome-kerviel-report<br />Parase, N. (2008, January 25). French Bank Trader Says Rogue Trader Lost $7 Billion. The New York Times .<br />BIBLIOGRAPHY<br />14<br />
  17. 17. That’s him!<br />APPLAUSE…..<br />It’s good we found the guy who lost 5 billion!<br />Need a little chip in the stock market? might need 180,000 years of life<br />15<br />

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