Will 'Rogue Trader' Kerviel Escape a Jail Sentence?

If convicted, he faces five years in jail and a fine of €375,000 ($498,000). But it's hard to get someone convicted on such charges. “It’s hard because of the complexity of what these individuals do," said Nicholas Lakeland, senior employment partner at Silverman Sherliker. "In France they have an inquisitorial system, so it will be magistrates who hear the case and decide on guilt or innocence.

“If this was a fraud trial in England, a jury of lay people would find it nigh on impossible to understand how the crime has been committed or whether a crime has been committed at all,” Lakeland added.

Société Générale published documents linked to the case on its website, saying it wishes to "permanently close this painful chapter in its history.”

"It is important not only for Société Générale and its employees, but also its clients, shareholders and society as a whole, that Mr. Kerviel’s crimes are permanently established and judged, and that the financial and reputational damages that he caused are acknowledged," said the bank on its website.

At the heart of Kerviel's defence is that his actions were merely a product of his aggressive environment.

"We are going to prove that the deals were visible for Société Générale, that Société Générale authorised them,” Olivier Metzner, Kerviel's defence attorney, told CNBC.com.

Metzner is one of France's top lawyers, with a formidable client list including former Panamanian dictator Manuel Noriega and former French Prime Minister Dominique de Villepin.

Focus on the Motive

Rogue traders tend not to act out of greed, they care more about winning, analysts told CNBC.

And like most criminal trials, motive may be important. “The prosecutors will need to prove criminal intent. Motive is something courts look at to determine intent,” said Matthew Menchel, managing partner of Kobre & Kim law in Miami.

But when a defendant recognises an act is dangerous and decides to commit it anyway, this is recklessness – and may work against Kerviel, according to Menchel.
“If they have evidence of falsely constructed emails supposedly from a counterparty, that’s pretty damning,” he said.

Kerviel's lawyer said he only did what other traders were doing. "Often, in the morning," the former trader is quoted as saying, "I received, as did my bosses, notification of major exposures in some of my portfolios.

"I then entered a fictitious transaction without informing my bosses to conceal these open positions."

Rogue Trading : “Déjà Vu”

The malfeasance of the Kerviel scandal has parallels with the historical cases of other rogue traders, particularly the former derivatives broker Nick Leeson, who was sentenced to six-and-a-half years in prison for unauthorised trades that caused the collapse of Barings Bank in 1987.

“The interesting thing might be whether in ignoring his actions, his bosses could be said to be conspiring with him to commit the crime…clearly that requires them taking positive steps in assisting him to commit a crime," Lakeland said.

He added, "From what we know of the evidence which has made it into the public domain, it seems he is alleged to have falsified emails and created fictitious counterparties, which therefore all indicate he intended to commit a fraud of some sort.”

Kerviel has said all along that he knew what he was doing was not right. But his defence may try to create a grey legal zone where he was doing something unambiguously wrong, but perhaps legal.

Some experts believe this grey zone is imaginary. “Fraud is fraud,” Lakeland said. “It is not difficult to tell if someone has lied, falsified documents and created fictitious counterparties.

“I don't think it’s a strong defence to say, ‘I committed a crime, others knew it and said nothing.’ It's still a crime whether his superiors stopped him committing it or not,” he added.

Restoring Market Confidence?

The verdict in this case could have some impact on how banking is regulated in the future, as well as how confident investors are.

“Regulatory bodies such as the FSA are increasingly imposing significant financial sanctions on banks who fail to properly control their employees,” Lakeland said.

In Kerviel’s case, the French central bank fined Société Générale €4 million.

A guilty verdict may work in the market’s favour, if it convinces the public that the big violators will be punished, according to some analysts.

But for now, Kerviel looks to be ready to tackle his former boss head-on.

- Antonia Oprita in London contributed to this article.

© 2010 CNBC.com
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