Were spreadsheets a vehicle for the Societe Generale fraud?

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A theory is circulating in IT security and compliance circles that inadequate, spreadsheet-based internal controls may have played a part in allowing Societe Generale's rogue trader Jerome Kerviel to build up positions that eventually resulted in a 7 billion euro loss for the bank. John Stokdyk reports.

According to reports based on his interview transcripts with French police, Kerviel knew colleagues' ID and password codes to create fictitious trading accounts and send email orders to build up his positions in the derivatives market. Although a low-ranking trader, Kerviel had worked in the bank's back and middle offices for five years, where he learned how the risk management software worked.

Some commentators have speculated that in addition to disguising his trades through a fict...

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05th Feb 2008 15:45

SocGen report of Jan 24
Naturally, I'll be covering that angle in my newsletter too, but the official report is available online (PDF format)

"Financial instruments in portfolio A were in appearance offset by the fictitious operations housed in Portfolio B, which meant that the only visible risk was very low residual risk"

A timeline is given from Jan 18 to 23.

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05th Feb 2008 13:39

Thanks for the props John. I'd not seen the Register piece when I penned my crack at spreadsheets as part of the article at ZDN so serendipitous perhaps. Conner is being facetious when he talks about the models used by analysts. Yes they use spreadsheets to create the models but they're somewhat more sophisticated than he is giving credit for.

The spreadsheet angle is an interesting theory but my reading of the runes on this one is that SocGen had process control problems that were known but not acted upon. There were other warning signals flagging up transactions Kerviel was executing as I'd expect but again, not acted upon. They referred to Kerviel ''hacking' but that seems a stretch given other facts that are known.

As I've said elsewhere, there's a long way to go on this story before the final curtain comes down.

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05th Feb 2008 13:05

this sounds like
pure speculation. But even if it is near the mark it describes mismanagement on a grand scale. Where were the compensating controls?

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