What's up guys and welcome back to wall street millennial on this channel, we've seen many instances of rogue traders engaging in illegal behavior, racking up tens or even hundreds of millions of dollars of losses for other market participants. Sometimes these rogue traders are institutions themselves other times, they're, just individuals who think they have found the key to the market. But almost no one comes close to the case of jerome kerviel, the famous french trader, who made thousands of unauthorized trades for his employer. They say that he placed nearly 70 billion dollars in trades on the company's accounts going unnoticed until he had racked up losses of about 7 billion dollars.

But by then it was too late and his employer, one of europe's biggest banks, had to write off the unauthorized trades as pure losses in this video we'll go over the career of jerome kerviel and how he tricked a prestigious french investment bank into letting him lose. Almost 7 billion of their money, jerome kerviel, was born and raised in a working-class family. In france he went to college at the university of nantes, studying finance and then went on to earn a master's degree in back office finance. He was a mediocre student, not especially strong, but not weak, either after graduating from his master's program.

Curvier started to work at france's second largest bank society, general or sock gen for short sock gen is the french equivalent of jp morgan or bank of america, providing all sorts of retail and investment banking services at the time it was the second largest bank in france And remains one of the most significant investment banks in the world. Among other things, it engages in retail, banking, private, making asset management and securities trading. When jerome kerviel joined sock gen in 2000, he was assigned to a middle office job doing compliance work. He was in charge of helping with tasks such as verifying trades and making sure all the activities of the bank's front office traders were in accordance with government and company rules.

Over the course of several years. He made a name for himself within the company's finance department. It was eventually offered a position in a front office job in the securities trading business. He was put on the delta one desk as a junior trader, where he traded things like equities and etfs.

In his new role. He was paid handsomely, but he had ambitions to grow his position within the company, as well as his take-home compensation, starting just a year after he was put on the training desk curvier started, making certain trades that he was technically not allowed to place. In particular, he put on bigger and bigger trades that overstep his authority as a junior trader, but for some time nobody noticed so. Throughout 2006 his trade just became bigger and bigger by 2007 he was placing billion dollar trades that he would hold for.

Just a few days and then sell them just before a three-day alert system that would notify higher-ups that potentially risky positions were being placed throughout the later half of 2007. He was net short, the market betting. That stocks would go down. Sure enough credit worries and the gradual unfolding of the great financial crisis rewarded his bearish trades as the markets continued to go down in the second half of 2007, kerviel was emboldened to put on bigger and bigger bets, eventually placing tens of billions of dollars of sock.

Jen's capital at risk with his trades, he used futures contracts to increase his leverage on his bets. Futures contracts are financial derivatives whereby a trader can get 100 of the exposure to a stock or other underlying security, but not have to put up the capital of actually buying that security. Using these derivatives he was placing tens of billions of dollars of his company's money. At risk - and it was working by the beginning of 2008, the dow jones industrial average had fallen nearly 20 percent from its highs needing sakjon more than a billion dollars in profits due to kirbiel's trading.

The only problem was that this was perhaps too much profit. Even kerviel didn't mean to make that much money with his rogue trading. So at some point in early 2008 he tried to dial back his trading profits so as to reduce the attention that he would be getting from the firm's compliance officers, but he had already racked up more than a billion dollars in profits on his account. So he placed a few trades to try to bring those profits down slightly.

He was bearish on stocks, so he placed long bets on the market plan to close them once his account's profit had moderated. Unfortunately, the market crash only accelerated in 2008 dropping even more than 2007.. In a single day. The dow crashed 778 points, the largest point decline in dow history.

Up until that point, the s p 500 index dropped 8.8 in a single day and the nasdaq fell. 9.1 percent, by the time the smoke had cleared, the total losses to the bank came up to more than 7 billion. This loss was a significant portion of the entire value of the bank at the time, something like ten percent of the market cap, along with accelerating credit losses of three billion dollars. At the same time, the bank was forced to try to raise new outside capital from investors.

Curvy l supervisors were all fired and kerviel himself was taken into police custody. After 48 hours of police questioning curville was charged with abuse of confidence and illegal access to computers. Two and a half years later, his trial found him guilty of the charges and he was sentenced to five years in prison in order to pay back sajin 6.7 billion dollars for the trading losses. However, that 6.7 billion dollar penalty to an individual was considered to be a joke and no one, including stockton itself, ever expected curville to pay back anything.

But questions still remained about how the fiasco was even allowed to happen. In the first place, critics of sakchen questioned whether it was even possible for the paint to have not known about his trading, given the extreme nature of the positions that he put on later. In 2008, the french finance minister, christine lagarde, spearheaded a campaign to investigate the bank's involvement in making the fraud possible. She concluded that sakjin had failed to apply the appropriate controls on curviel.

Only a couple years before the incident sachin was told to strengthen their operational security protocols, but they did not a potential reason why sanction may have knowingly allowed kirvial to place. The outsized trades was because satchen itself was the one benefiting when the trades were going. Well, not curvier. His trades had resulted in more than a billion dollars of profits for the bank before it all.

Unraveled sakjin said that kerviel hit his activities by telling company authorities that large trades were mistakes and then closing them just to put on similar positions and highly correlated trades later. Among other things, he allegedly also faked emails to his superiors in order to shift the focus away from himself. However, certain experts have cast doubt on whether these measures would have been enough to hide the traits from curville supervisors. In particular, trivial's lawyers have said that sakjin knew about the trades all along and allowed them.

They said that sachin was trying to use curvier as a scapegoat to detract attention away from their own corporate losses from around the same time. Another kink in the story is that, to this day no motive for crivial taking such large positions has been found. He would not profit from the trading gains. His superiors, on the other hand, would be likely to receive extraordinarily high bonuses on good trading results in sock.

Gen's trading operations, this could have incentivized them to either allow or possibly even encourage curvier to make the risky trades after they realized that they were so profitable after the fraud was uncovered police investigated, whether or not curville had accomplices that might have been involved in insider Trading of sock jen's shares around the time that the massive losses were announced. However, no such evidence was ever found in the end. Kerviel spent just five months in prison, along with the 7 billion restitution that he was ordered to pay back to sakjin these days. He is out of prison and is working another normal job, just like a normal citizen in the case of jerome curiel, it's hard to believe that he alone is responsible for the 7 billion dollars in losses incurred by his employer after making more than a billion dollars Of trading profits in 2007, it seems implausible for sakjin not to have looked into how the money was made.

A billion dollars would have been a very significant fraction of the entire company's profits, let alone the profits of the securities trading division or even one single trader. The idea that he was working alone without knowledge of his superiors until a massive position worth tens of billions of dollars came crashing down seems absurd. It would be much more believable that others within sock, chin's training division were condoning or even coordinating the trades and simply using kerviel as the face of their activities in case a disaster like this happened. After all, the potential motives in the form of bonuses for the leadership within seokjin would have been millions or tens of millions of dollars, orders of magnitude more than curville's maximum potential compensation for the trades.

But what do you guys think do you think curviel is to blame for sakshin's 7 billion trading disaster? Let us know in the comments section below also, if you enjoyed this content, make sure to leave a like and subscribe for future videos like this one. In the meantime, thank you so much for watching and we'll see you in the next video wall street millennial, signing out.