Societe Generale posts 4th-quarter loss of $4.91 billion after trading fraud
was the headline in the Star Tribune in the wake of the $7 billion trading
scandal. The French bank took a 4.9 billion euro ($7.18 billion) hit closing
the unauthorized positions of futures trader Jerome Kerviel, who is being
held in a Paris prison and has been questioned by investigators for a third
time.

An internal report said bank officials failed to follow up on dozens of
warnings about questionable trades. The report commissioned by a committee
of three independent board members detailed 75 warnings signs in Kerviel's
exchanges, such as a trade with a maturity date on a Saturday or a missing
broker name. The signals weren't always flagged to superiors and "when the
hierarchy was warned, they didn't react," the report said.

Kerviel told investigators that he believes his bosses were well aware of
his risk taking but turned a blind eye as long as he earned money. "I can't
believe that my superiors were not aware of the amounts I was committing, it
is impossible to generate such profits with small positions," according to
excerpts of his police testimony published in Le Monde newspaper. Kerviel
also insisted that his top concern was "earning money for my bank. As long
as I was earning cash, the signs were not that worrisome," he said. "As long
as you earn money and it isn't too obvious, and it's convenient, nobody says
anything."

Nick Leeson, the rogue trader who brought down Barings Bank told the BBC
that he was not shocked that the latest fraud had taken place - only its
scale. "Rogue trading is probably a daily occurrence within the financial
markets," he said.

This case obviously raises certain questions from a recruitment consultant's perspective:

If he had gone through the executive search and selection route would a consultant have spotted this dangerous aspect of his character during the interview?

We've read that this guy is smart and because he had worked in the back office he knew how to cover his tracks, but he was also a Walter Mitty character and was provided with counsellors by the bank.

"Sometimes people don't know the size of what they are getting into," Jean-Pierre Mustier, the head of the investment banking arm, said. The bank said it was baffled as to his "irrational" motives. But there is a suggestion that he did it to prove the system could be broken.

Should we be making more use of personality profiling during the recruitment process?

As a recruiter, I am not keen on this approach as it creates obstacles to recruiting talented people. How many of us do not have certain personality/behaviour defaults that differentiate us from the norm? Often
the most talented people are on the extreme side of thinking. Somehow we need a way to separate these from the seriously deluded.

How could he have been managed/controlled better?

I personally think some products are so new and complex that the risk management teams are always lagging behind. Just like drug testing in sports, some get caught out but many are always 1 step ahead.

What are the answers? How can we avoid situations like this happening again?

As ever we'd welcome your comments and thoughts.