Société Générale faces lawsuit, while Kerviel turns spotlight on fellow traders

A lawyer acting for 100 small shareholders said he was suing French bank Société Générale, accusing it of insider trading and market manipulation

The scandal at Société Générale took a dramatic new turn today when a lawyer acting for 100 small shareholders said he was suing the French bank, accusing it of insider trading and market manipulation.

The bank's woes deepened when Jérôme Kerviel, the "lone" rogue trader behind its €4.9bn (£3.6bn) losses, accused colleagues of similarly trading beyond their limits - and prosecutors said SocGen had been alerted by the Eurex derivatives market to the scale of his positions as long ago as November last year.

Lawyer Frederik-Karel Canoy said he had launched legal action against SocGen over the way it unwound Kerviel's multibillion euros deals last week.

The bank said on Sunday it had unwound Kerviel's positions, amounting to €50bn, "in particularly unfavourable market conditions" between Monday and Wednesday last week after discovering them on January 18.

Canoy told Reuters the bank should have informed markets about its pending losses before embarking on its huge three-day selling spree to unwind the uncovered Kerviel positions.

He said he had also filed a separate complaint about the sale of 1m shares by SocGen director Robert Day of shares on January 9 and 10, disclosed in a filing. The bank said the share sale had come "well before" it knew of any fraud.

Kerviel has admitted hiding his activities but accused colleagues at France's second-biggest bank of trading beyond their limits, the Paris prosecutor said earlier. The 31-year-old was formally charged with a series of offences, including fraud, that could bring a prison sentence of up to seven years.

Prosecutor Jean-Claude Marin said Kerviel, who gave himself up on Saturday, had told investigators that other irregular deals had taken place since the end of 2005. This could seriously undermine SocGen's defence that the 31-year-old trader was a one-off fraudster of genius who eluded its risk-control processes through elaborate fictitious trading, building up a huge exposure.

"There were other traders who had acted in a similar way by exceeding their trading limits," Kerviel told the police, according to the prosecutor.

Marin said the investigation, carried out by police's "financial brigade" had shown that Kerviel did indeed act alone, but Eurex, the European derivatives exchange, had alerted the bank in November last year to his positions. SocGen had no immediate comment.

"Questioned by the bank, he produced a fake document to justify the risk cover," Marin told a news conference at which he also indicated that Kerviel had intended no harm to the bank and, instead, tried to become a star trader.

Marin said he had requested that Kerviel be placed in temporary detention for his own good. He is expected to be brought before a magistrate later today though his lawyers are pleading that he be released on bail.

They have accused SocGen of using him as a smokescreen for covering up huge losses in the US sub-prime market - a charge dismissed by Daniel Bouton, chief executive, as "completely idiotic".

Bouton, who offered to resign last week when the scale of SocGen's losses began to emerge, said earlier today his offer remained on the table and is under some political pressure to step down.

The bank has so far dismissed two senior managers because of the Kerviel scandal: Luc François, head of equity derivatives trading, and Jean-Pierre Lessage, his direct manager.

Contributor

David Gow in Paris

The GuardianTramp

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