SOCGEN ( Societe Generale)

1) Who are the stakeholders in this case?

The stakeholders in this case include Nick Leeson who was currently trader and market maker
from Barings Bank PLC, was responsible for the loses totaling up to $1 billion dollars and
Jérôme Kerviel, his coworkers and executives at SocGen who were take the responsibility on
approximately $7.9 billion loss.

2) What did Kerviel do wrong?

Kerviel’s activities include engagement in unauthorized trades since 2005 and choice to place a
series of bad bets on European future indicating Kerviel’s unethical business decisions. Although
Kerviel’s actions contribute to make SocGen prominent not only in business but as a brand as
well, it rewarded him a five-year jail sentence on October 5, 2010 (with two years of the
sentence suspended for time already served).

3) What did SocGen do wrong?

Société Générale noted that Kerviel had previously come from IT department and so had in-
depth knowledge of its systems and procedures. Staff mostly followed those procedures, but the
procedures were not in themselves sufficient to identify the fraud before Jan. 18, partly because
of the effort Kerviel made to avoid detection, and partly because staff did not systematically
conduct in-depth investigations when warning flags were raise. Obviously, SocGen's lack of risk
management inevitably caught the attention of the France’s finance minister, only to reveal that
Kerviel's actions were not too difficult to find and management wasn't following procedure
properly with routine checks. That’s why Kerviel got away with his scheming for 5 years until he
was caught.

4) Identify the ethical violations that occurred in this case?

There are three main activities in this case being regarded as ethical violations. Firstly, Kerviel
knew he was doing something unethical or illegal but still chose to do it anyway. Secondly,
instead of preventing earlier the fraud of the trader when management has initially suspicion
about this, they just pay attention to their increasing profit. Lastly, Nick Leeson was able to
manipulate and use his back office knowledge to hide the size of the trades he was placing on the
Japanese stock market.
5) Would the outcome have been different if Kerviel’s trades in European futures had worked
out?

The outcome would have not been different if Kerviel’s trades in European futures had worked
out. Because it was found that Kerviel was engaging in unauthorized trades since 2005 placing
the corporation in such high risk and acting in an unethical ways.

6) What actions could SocGen have taken to prevent such large losses?

From this case, SocGen must have a thorough understanding of how the business works and
where there is risk. They also have to monitor the actions of their traders more closely and
immediately inform the trader’s fraud. In other word, the internal accounting controls should
have prevented much earlier the fraudulent activities.