Five Years After Financial Crisis, "Rogue Traders" Are Still Everywhere

Michael Teague |

On Thursday, Equities.com’s own Jacob Harper commemorated the 5th anniversary of the collapse of Lehman Brothers, the official beginning of the subprime mortgage crisis, with an extremely useful “greatest hits” selection of headlines published throughout the course of that fateful September, as major news outlets grappled with the daunting task of explaining the origins, size, and scope of the disaster to the American public.

For its part, the American public has since that time, and understandably, taken to entertaining far more dismal notions about a financial culture, a culture which the public likely already had a significant amount of antipathy towards prior to 2008.

Anecdotal evidence for this claim is plentiful; consider the Occupy Wall Street encampments that began spreading like wildfire to various public areas in most of the US’s major urban centers two years ago which, in a great many instances, could only be broken up through heavy-handed law enforcement tactics of often tenuous legality (such as the disgraceful pepper spray incident in Davis, California, or in Oakland, where an Iraq/Afghan vet was hit in the head with a tear gas canister fired from close range).

Occupy can also be given credit for bringing the issue of class to the mainstream discourse with the 99 percent-1 percent slogan. On Sept 13, for example, Yahoo! Finance featured an article about the income gains of the “top 1 percent”, and this is by no means the only instance in which this language has been appropriated by major media outlets (irrespective of how much justice these outlets do to the issue).

Since 2008, there have been plenty of other indications that white collar crime is indeed a real concern of that portion of the population commonly referred to as “Main Street,” from increased scrutiny of post-bailout CEO salaries, to the Federal government’s increased efforts to rein in the Wall Street free-for-all.

The effectiveness of these efforts is yet to be determined, however. From 2008 on, a number of massive and high-profile trading losses at large financial institutions have seen billions of units of currency disappear as if overnight. Often, such scandals are pegged on one individual, or a small group of them in some instances, even though there is usually ample reason to suspect that their activities were nothing out of the ordinary for that specific “cultural” setting.

The following are a few of the largest trading losses to have occurred since 2008, purportedly as the result of the “indiscretions” of one of a few “rogue” individuals:

Jérôme Kerviel – Société Générale ($SCGLY) –On January 24, 2008, Société Générale announced that it had lost some $7 billion dollars in unauthorized and highly risky trades by one man, a barely 30-year-old arbitrage trader Jérôme Kerviel, who was alleged to have used his knowledge of computers and compliance regulation to create fake trades and then cover them up. The same announcement was used to announce over $2 billion in losses from the unfolding subprime mortgage crisis, however, and the skeptical French public and media were quick to ask how one man could engender such enormous losses, and furthermore trade over the bank’s market-cap without being noticed. Kerviel was sentenced to three years in prison, but has maintained that his actions were part and parcel of company culture, and is regarded as a sort of anti-hero by a substantial portion of the public.

Kweku Abdoli – UBS AG (UBS) –Abdoli was in the employ of UBS’s London-based trading equity division as an analyst, before being sentenced on Nov 20, 2012, to 7 years of prison by a court after being found guilty of committing fraud. His unauthorized trades, discovered in 2011, cost the bank some $2.3 billion.

Bruno Iksil – JPMorgan Chase (JPM) –JPMorgan is still dealing with the consequences of the “London Whale” scandal/$6 billion in trading losses, that it claims were the result of a few unscrupulous traders in its London office. Iksil, the man responsible for the trades, is cooperating with authorities however, and will likely not see the inside of a prison cell, and indeed seems to be able to prove that his massive and highly risky bets were well-known to his superiors in the London office. The incident created a PR nightmare for JPMorgan, whose CEO Jamie Dimon dismissed early allegations by calling the whole thing a “tempest in a teapot”.

 

[Image Courtesy of Flickr Creative Commons]

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Companies

Symbol Name Price Change % Volume
JPM JP Morgan Chase 85.49 0.37 0.43 14,567,202
UBS UBS Group AG Registered 16.78 -0.52 -3.01 2,761,325
CTAGF Capita Group Plc 6.75 0.00 0.00 0

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