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2/1/2008
01:03 PM
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Lessons Learned from SocGen: Every Employee Matters

By now nearly everyone has heard about the rogue trader at SocGen, one of France's largest banks, who managed to cause the bank to lose an astonishing $7.2 billion. But as the details of the case emerge, the lessons learned from the incident apply to all businesses, even smaller ones.

By now nearly everyone has heard about the rogue trader at SocGen, one of France's largest banks, who managed to cause the bank to lose an astonishing $7.2 billion. But as the details of the case emerge, the lessons learned from the incident apply to all businesses, even smaller ones.The 31-year old trader, Jerome Kerviel, made some bad bets on stocks and then, in trying to cover up those losses, dug himself deeper and deeper into the hole.

As The New York Times points out, the scandal is almost "old fashioned" in its approach, but the point, for tech managers at smaller businesses, is that it is most likely a combination of Kerviel's tech skills and the lack of oversight on all employees that enabled the problem to get as big as it did.

In The Globe and Mail, Eric Reguly writes: "The question is whether Mr. Kerviel was technologically savvy enough to hide his positions given the highly sophisticated controls in place. SocGen says he was, that he used fake trades to disguise the true size, and hence risk, of his positions."

But Reguly continues that Kerviel told prosecutors that his positions went way beyond his spending limits by last summer. Reguly quotes Kerviel: "I cannot believe that my superiors did not realize the money I was committing. It was impossible to generate such profits with small positions."

The truth probably lies somewhere in between, and should be a warning light for smaller businesses who think they have nothing to learn from a scandal this big at a bank this big.

Writes Dominic Connor in The Register: "Most of the media have yet to pick up on the fact that he was supposed to be an arbitrageur, someone who makes riskless profits by spotting things that have been given the wrong price. Instead he bet on prices going up and down. One idea that caused much merriment late Saturday on the Ile Saint-Louis is that his work was deemed to be so low-risk that no one looked all that hard at it."

Connor also disputes the notion that Kerviel was a "computer genius" as the president of the Bank of France called him. "But I can infer he was a superior tactical programmer because he was promoted out of the wilderness, which implies he can work hard, and so commands some respect. He might have downloaded some scareware, but the idea that he did any hardcore hacking seems like a fanciful attempt to make SG look less negligent."

Kerviel knew how to work his way around the computer, he had access rights, and he wasn't being very closely monitored. How many of your employees can you say that about? Most smaller businesses don't have $7.2 billion to lose, but it's all relative. And it only took one employee to do a lot of damage.

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