Prosecutor seeks appropriate charges against trader

By JAMEY KEATEN, Associated Press Writer

A Paris prosecutor on Monday asked for preliminary charges of forgery, breach of trust and fraud against a low-level trader accused by Societe Generale bank of orchestrating the largest securities fraud ever by single person.

Prosecutor Jean-Claude Marin said Jerome Kerviel, 31, did not attempt to steal money from the bank or its customers, but was motivated by a desire to be "an exceptional trader" and that he sought performance bonuses.

Kerviel appears to have acted alone, Marin said.

"It's always a bit for money, I'm not sure that was his prime motive," said the prosecutor. "It functions a bit like a drug, it's an addiction ... there's a sort of spiral you can't get out of."

Kerviel told investigators, who just wrapped up 48 hours of questioning, that he expected a bonus of 300,000 euros ($441,150) for 2007.

Societe Generale said it lost 4.82 billion euros ($7.09 billion) after unwinding Kerviel's trades.

Kerviel was set to appear before a judge who will decide whether to proceed with preliminary charges.

Under French law, filing preliminary charges means the judge has determined there is strong evidence to suggest involvement in a crime and gives investigators time to ask for a trial.

The bank's offices were searched Friday and "masses of documents" including computer records were seized, Marin said.

CEO Daniel Bouton said Societe Generale, thought by some experts to be vulnerable to a takeover, has not been approached.

Bank shares fell nearly 4 percent to 70.94 euros ($104.32) Monday.

Meanwhile, questions about how the bank handled the fraud are mounting. A lawyer for a group of Societe Generale shareholders, Frederik Canoy, said a legal complaint had been filed Monday asking investigators to look into possible insider trading.

The complaint was filed after France's market watchdog said in a routine disclosure that a member of Societe Generale's board, Robert A. Day, sold 85.75 million euros ($126.1 million) worth of shares in the bank on Jan. 9 — two weeks before the fraud announcement and well before bank management says it knew about the problem. Day is an investment manager with U.S.-based Trust Company of the West, or TCW, who Forbes magazine says has a net worth is $1.6 billion.

Two foundations linked to Day, the Robert A. Day Foundation and the Kelly Day Foundation, also sold a total of 9.59 million euros ($14.1 million) worth of shares a day later, on Jan. 10, the market watchdog reported. Regulators have made no allegations of wrongdoing.

Telephone calls to both Day foundations and TCW were not immediately returned Monday.

Bouton rejected suggestions from Kerviel's lawyers that Societe Generale was using their client to hide big losses linked to the U.S. subprime mortgage crisis.

"How could you want to imagine that we would have been able to hide a hole by another hole? It's completely stupid," Bouton told Europe-1 radio. He called Kerviel a "remarkable concealer" who had managed to outwit the bank's risk control systems by toggling between real and fictitious positions.

"That's what created this gigantic fraud," he said.

Elisabeth Meyer, one of Kerviel's defense lawyers, said he was "bearing up to the shock."

She disputed Societe Generale claims that Kerviel had committed fraud, saying he was in the black with his trades as of Dec. 31.

"In my view, he was thrown to the lions before being able to explain himself," said Meyer. "It's a lynching."

Another lawyer, Christian Charriere-Bournazel, said on Europe-1 radio that Kerviel made a profit of 1.5 billion euros ($2.2 billion) before his bets went sour.

The prosecutor, however, said the trader only "virtually" made a profit for the bank.

Kerviel could face a maximum seven years imprisonment if convicted under the current charges, the prosecutor said.

A day after the bank sent out a five-page explanation of how the fraud unfolded, analysts still had many questions.

Societe Generale alleges that Kerviel used other people's computer access codes, falsified documents and used other methods to cover his tracks — helped by his previous experience in other offices at the bank that monitor traders. It says he bet some 50 billion euros ($73.53 billion) — more that the bank's market worth — on European markets.

Societe Generale Bank Uncovers $7 billion Fraud by Futures Trader

By Emma Vandore, Associated Press Writer

French bank Societe Generale said Thursday it has uncovered a 4.9 billion euro ($7.14 billion) fraud -- one of history's biggest -- by a single futures trader whose scheme of fictitious transactions was discovered as stock markets began to stumble in recent days.

CEO Daniel Bouton said the trader's motivations were "irrational," netting the trader no personal financial gains. Still, the bank is seeking to have him prosecuted in court.

A person familiar with the case named the trader as Jerome Kerviel. Bank officials said the trader was a Frenchman in his 30s who probably acted alone. The person spoke on condition of anonymity because of the sensitivity of the case.

The bombshell destabilized a major bank already exposed to the subprime crisis. France's second-largest bank by market value said it would be forced to seek euro5.5 billion (US$8.02 billion) in new capital.

Societe Generale filed a complaint Thursday with a court in Nanterre, west of Paris, accusing the trader of fraudulent falsification of banking records, use of such records and computer fraud, the bank said in a statement.

The Paris prosecutor opened a preliminary investigation Thursday based on a complaint filed by a small shareholder concerned about losses incurred because of the fraud, a judicial official said. The Bank of France, the country's central bank, said it was immediately informed of the fraud and was investigating.

Societe Generale's shares, which have lost nearly half their value over the past six months, were suspended in Paris on Thursday morning, then dropped 5.5 percent to 74.77 euros ($108.97) when they resumed trading.

The bank said it detected the fraud -- comparable to a full year of its profits in stable times -- at its French markets division the weekend of Jan. 19-20.

Once uncovered, Bouton said the bank alerted market regulators and moved immediately to close the trader's positions, incurring heavy losses amid sharp declines on world markets.

"This is a bad time for banks and the industry in general. But detecting the fraud over the weekend was problematic because world stock markets on Monday and Tuesday fell hugely around the world. When the positions had to be unwound, the bank did that in a terrible market of falling equities," said Janine Dow, senior director at Fitch Ratings financial institution group in Paris

"In hindsight, it was this guy's superior knowledge of the control system of every aspect of trading at the bank that allowed him to build up fraudulent positions and hide them," she said.

The bank said the trader had misled investors in 2007 and 2008 through a "scheme of elaborate fictitious transactions." The trader, who was not named, used his knowledge of the group's security systems to conceal his fraudulent positions, the statement said.

The man admitted to the fraud, the bank said, and was being dismissed. Four or five of his supervisors were to leave the group. Bouton offered to resign but the board rejected that.

The trader had worked for the bank since 2000 and earned a salary and bonus of less than euro100,000 (US$145,700), executives said.

"I'm convinced he acted alone," said Jean-Pierre Mustier, chief executive of the bank's corporate and investment banking, who interviewed the trader when the fraud was uncovered.

The trader was responsible for basic futures hedging on European equity market indexes, the company said. That means he made bets on how the markets would perform at a future date.

Until last year, the trader had been betting that markets would fall, but then changed his position at the start of this year to bet they would rise, said Kinner Lakhani, an analyst at ABN Amro in London who specializes in Societe Generale shares, citing the bank's management.

He said there had been "daily rumors" this week that something was afoot at Societe Generale. "The market was sniffing something," he said.

Because the trader previously had worked in trading accounting offices, "he would have known how the risk management worked," Lakhani added. In a conference call with analysts on Thursday, bank officials "talked about this guy bypassing systems and setting up false counter-trades."

Societe Generale said the trader was involved in "plain vanilla" forms of hedging. Futures trading began with selling commodities like sugar or oil to be delivered at a future date, but has expanded enormously to many kinds of extremely complex financial instruments.

The fraud appeared to be the largest ever by a single trader. If confirmed, it would far outstrip the Nick Leeson trading scandal in 1995 that forced the collapse of British bank Barings. Leeson, the bank's Singapore general manager of futures trading, lost 860 million pounds -- then worth US$1.38 billion -- on Asian futures markets, wiping out the bank's cash reserves. The company had been in business for more than 230 years.

The fraud was not as big as the 1991 scandal that led to the demise of the Bank of Credit and Commerce International. Claims by depositors and creditors there exceeded US$10 billion at the time. International bank regulators seized BCCI, which had headquarters in Luxembourg, London and the Cayman Islands, acting on auditors' reports that described huge losses from illegal loans to corporate insiders and from trading transactions.

Axel Pierron, senior analyst at Celent, an international financial research and consulting firm, was stunned that 13 years after the Barings collapse, something similar has happened.

"The situation reveals that banks, despite the implementation of sophisticated risk management solutions, are still under the threat that an employee with a good understanding of the risk management processes can getting round them to hide his losses," he said.

At Societe Generale, the announcement came on the back of 2.05 billion euros ($2.99 billion) in write-downs linked to subprime-related difficulties and the crisis in financial markets.

The bank is now planning a capital hike in the "following weeks" by selling shares in a rights offer underwritten by JPMorgan Chase & Co. and Morgan Stanley.

The write-down and losses will lead the company to post a net profit of 600 million euros to 800 million euros ($874 million to $1.16 billion) for all of 2007, the Paris-based bank said. Full-year results will be announced Feb. 21. In 2006, net profit was euro5.2 billion.

Associated Press writers Matt Moore in Davos, Switzerland, Thomas Wagner in London and John Leicester in Paris contributed to this report.

Seven ways to spot a liar on the job

By Ken Osborn

How many times has your business suffered because you trusted the wrong person? If you're like most people, you've been lied to thousands of times.

Deception hurts in many ways. There's the emotional stress from being betrayed, the loss of self-confidence and the increased suspicion or even paranoia. Not to mention the financial cost.

A deceptive supplier may promise that a shipment will arrive by your deadline, all the while knowing that delivery by the promised date is impossible. Trusting this supplier could cost your company thousands of dollars or more. Deceptions like this can be deadly to a growing business.

But you don't have to be a victim. Here are seven subtle cues that often mean a person isn't being completely honest with you.

1. Nose touch: We have erectile tissues in our noses, which engorge with blood when we lie. This causes a tingling or itching sensation that requires a nose touch to satisfy. The absence of a nose touch doesn't guarantee truth, but the presence of a nose touch often means deception. Of course, sometimes a person will touch his or her nose because of a non-deceptive cause, such as a cold. With some practice, you can quickly learn to distinguish a deceptive nose touch from something innocent.

2. Speech disturbances: When we lie, we force our brain to pretend that the lie is true, that the truth is a lie and simultaneously remember that the real truth is that each is the other. Are you confused? So is your brain when you lie. The process of deception taxes our cognitive ability to think efficiently. So when we lie, we pause longer and speak slower than normal and often experience speech disturbances that serve as gap fillers, such as "um," "er" and "ah." Train yourself to look for deception when you hear this kind of verbal cue.

3. Incongruent behavior: When our words and our body language don't agree, our communication is incongruent. Imagine that you ask a salesman if he can assure your delivery will be on time. If he explains how certain he is about it being on time while also shaking his head--as if non-verbally saying "no"--he is incongruent. When this sort of incongruence occurs, you would do well to believe the person's body over his words.

4. Neck rub: We rub our necks because of the stress we experience when we feel that an obstacle may be insurmountable. Let's say you're interviewing a potential employee for a key leadership position and the prospective employee verbally emphasizes his interest in the job. However he also begins to rub his neck when you explain the expected duties. This probably means he doesn't feel he'll be able to accomplish the duties. He might be wrong, but if we know anything about human psychology, it's that if someone believes that they can or can't do something, they're probably right.

5. Eye rub: An eye rub is an indicator of disbelief. Let's say you have an important computer keystroke sequence to teach a new employee. The employee begins to rub her eyes even while verbally affirming your statements. This probably means that she doesn't believe you or disagrees with your instruction. It would be wise to stop and ask a question to allow the employee to verbally object. Many subordinates feel uneasy about disagreeing with the boss, but their bodies don't hesitate. Perceiving a potential problem and dealing with it early can be the difference between a simple misunderstanding and a business disaster.

6. Upward inflections: We upwardly inflect our words when asking a question. You may have noticed that some salespeople will upwardly inflect certain statements of fact. This is a red flag that should alert you to potential deception. The salesman might say, "Your competitors have seen their profit margins increase by 30 percent by using our product." If you notice that he upwardly inflected the words, "30 percent," you should disregard this statistic and be suspicious of him altogether.

7. Stabbed hollows: In the study of graphology--or handwriting analysis--hollow letters represent honesty. Anything that disrupts a hollow letter could indicate deception. Let's pretend you enter your office to find a note from your top salesman on your desk. His note indicates that he had to go out of town to visit his sick mother and won't be able to go to the annual trade show. You notice that every "o" in his note has some sort of mark interjected into the hollow space of each letter. You would be right to be suspicious of the facts in the note and a phone call or meeting would likely expose some sort of deception.

With some practice, these new awareness tools will give you greater confidence in your perceptive ability and new peace of mind when deciding to trust others.

Chinese Ministers, Bush to Meet on Trade

Associated Press

Preparing to meet President Bush, Chinese ministers sought to soothe congressional anxiety about Beijing's trade practices after high-level economic talks yielded few results.

Discussions Wednesday between senior Bush administration officials and the largest high-level Chinese delegation ever to visit the United States also failed to reach a breakthrough in the countries' biggest dispute: China's undervalued currency.

After the talks, Vice Premier Wu Yi, leading the Chinese group, met privately with frustrated congressional leaders. She also planned separate meetings Thursday with Bush and senators.

Wu, speaking through an interpreter, said Wednesday that her discussions with House Speaker Nancy Pelosi and other lawmakers were "very good," but she provided no other details.

After the meeting, Ways and Means Committee Chairman Rep. Charles Rangel said the Chinese told lawmakers they needed more time to overhaul their currency system and make other changes.

Rangel, a New York Democrat, told reporters that his committee planned to move forward with legislation; some of the bills being considered would impose stiff penalties on Chinese imports for what critics say are unfair Chinese trade practices that have driven U.S. trade deficits to record levels and cost thousands of manufacturing jobs.

Democratic Sen. Charles Schumer, a leading critic of China, described the frustration he said his colleagues felt. "There's never any action," he said in an interview. "I don't think a press release is going to assuage Congress' worries. We need results."

Despite the criticism, both Wu and Treasury Secretary Henry Paulson, head of the U.S. delegation at the talks, sounded positive about the importance of the new high-level "strategic economic dialogue" between the countries, which occur twice a year.

The delegations agreed Wednesday to more than double the number of daily passenger flights between the two nations by 2012, going from 10 to 23. Cargo flights also were increased. The gains fell short of the openings the Bush administration had hoped to achieve.

In the area of financial services, China agreed to a slight expansion in business opportunities for U.S. companies but not the lifting of caps on foreign ownership of banks, securities firms and insurance companies that U.S. firms had sought.

China also rejected U.S. requests that it accelerate the revaluing of its currency, the yuan, which American manufacturers contend is undervalued by as much as 40 percent. That makes Chinese products cheaper for Americans and U.S. goods more expensive in China.

For her part, Wu called the talks "a complete success" and said it was important to continue direct consultations between the two nations rather than resorting to "threat and sanctions."

U.S. business groups had a decidedly more downbeat response.

"It's clear that this dialogue has been nothing but a cynical Bush administration exercise in spin and public relations," said Kevin Kearns, president of the U.S. Business and Industry Council, which represents small and medium-size manufacturing companies. "The failure of the White House's approach is now clear, so the ball is clearly in Congress' court."

Ex-Coke worker gets eight years for trade-secret theft

By HARRY R. WEBER, AP Business Writer

A federal judge ignored a former Coca-Cola secretary's plea for mercy Wednesday and sentenced her to eight years in prison for conspiring to steal trade secrets from the world's largest beverage maker.

U.S. District Judge J. Owen Forrester told Joya Williams, 42, that he was giving her a longer sentence than recommended by federal prosecutors and sentencing guidelines because, "This is the kind of offense that cannot be tolerated in our society."

Williams had faced up to 10 years in prison on the single conspiracy charge in a failed scheme to sell Coke's trade secrets to rival Pepsi for at least $1.5 million.

But sentencing guidelines, which federal judges are not bound by, called for a sentence of 63 months to 78 months. Williams was convicted Feb. 2 following a jury trial in U.S. District Court in Atlanta, where The Coca-Cola Co. is based.

"I can't think of another case in 25 years that there's been so much obstruction of justice," the judge said.

As for the sentencing guidelines, Forrester said, "The guidelines as they are written don't begin to approach the seriousness of this case."

A co-defendant, Ibrahim Dimson, was sentenced to five years in prison.

Forrester ignored a tearful apology by Williams, which marked the first time she acknowledged what she did. Williams had testified during the trial that she did not commit a crime.

"Your honor, I have expanded my consciousness through this devastating experience," Williams said before she was sentenced. "This has been a very defining moment in my life. I have become infamous when I never wanted to become famous."

She added, "I am sorry to Coke and I'm sorry to my boss and to you and to my family as well."

The government said Williams stole confidential documents and samples of products that hadn't been launched by Coca-Cola and gave them to Dimson and a third defendant, Edmund Duhaney, as part of a conspiracy to sell the items to Pepsi. Duhaney, like Dimson, pleaded guilty to conspiracy.

Duhaney will be sentenced later.

The conspiracy was foiled after Pepsi warned Coca-Cola that it had received a letter in May 2006 offering Coca-Cola trade secrets to the "highest bidder." The FBI launched an undercover investigation and identified the letter writer as Dimson.

Williams was fired as a secretary to Coca-Cola's global brand director after the allegations came to light.

Williams' apology Wednesday lasted for several minutes and she asked the judge to show mercy, though Forrester had told her before she spoke that he planned to depart from sentencing guidelines.

"Punishment is the memories and the moments that I'm going to miss," she said. "Punishment is never having a family of my own."

Assistant U.S. Attorney Byung J. Pak told the judge that Williams didn't deserve leniency.

"Choices have consequences and she made those choices," Pak said. "She chose to go to trial and she lied on the stand."

At the hearing, prosecutors disclosed that Williams has two prior convictions, one involving making false statements related to unemployment insurance.

Williams' lawyers had repeatedly asserted in court and out of court that Williams had no criminal past, and the government until Wednesday did not challenge that assertion.