Police question second SG employee

A new lead has emerged in the recent case of unauthorised trading at Société Générale (SG), which cost the bank €4.9 billion in January.

French police on Wednesday brought a second employee at Société Générale in for questioning as part of an ongoing investigation into unauthorised trading at the French bank. According to local media reports, police also searched the bank’s headquarters and took documents.

When news of the scandal broke in January, SG attributed the losses to unauthorised positions totalling €49 billion taken by a single person: Jérôme Kerviel, a junior arbitrage trader on its delta one equity derivatives desk.

Reports from Paris suggest the latest person brought in for questioning – believed to be a broker in the bank’s equity trading group - is not Moussa Bakir, a broker at SG subsidiary Fimat (renamed Newedge in January) who was questioned in February and named a material witness in the case. The broker was later released without charge.

Also on Wednesday, New York law firm Cohen Milstein Hausfeld & Toll filed a class action lawsuit against SG. The claim was made on behalf of all investors who purchased the bank’s American depository receipts and US buyers of SG shares on overseas exchanges between August 1, 2005 and January 23, 2008.

The complaint – filed in the New York federal court – alleges SG made false statements regarding its subprime mortgage exposures and the strength of its internal controls, suggesting in particular the bank failed to act on several alerts that could have uncovered Kerviel’s trading activities sooner.

“It is apparent SG did in fact authorise a culture of risk to flourish, with the resulting detrimental impact to its shareholders,” said Steven Toll, managing partner at Cohen Milstein. “The enormous loss in the subprime market and the dramatic loss of $7 billion in the trading department were completely unexpected to those investing in SG securities.”

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