The Jerome Kerviel Affair Harvard Case Solution & Analysis

The Jerome Kerviel Affair Case Solution

1. If it was January 1, 2008, - that is, before Kerviel’s trades became known – and you were the CEO of Societe Generale, how would you feel about the robustness of your firm’s business model and risk management practices?

As the CEO, as far as the bank is generating higher earnings and working in an efficient manner, less importance will be given to the risk management and business model. Since the performance is far exceeding the expected performance, this implies that the business has an effective model in place and all the risk management tools are working effectively. Even if some issue becomes apparent, then less focus is made on them and are considered less bothered as it have not been effecting the operating performance of the company.

2. Identify the internal control systems in place to address traders and trading risk.

Lack of Direct Supervision

Supervisors and front desk managers are required to overlook the work of the traders. Moreover,they are required to make sure that each trader should not exceed its risk limit and overview their trading activities and profit and losses.On the other hand, the supervisor did not work objectively,along with this, the supervisor resigned and the position was unfilled for some time. Overall, this shows the lack of supervision on the traders. Thus, Kerviel made use of this situation.

Control Function and system procedures

The control functions and system and procedures are designed in a way that these works as a tool to verify that the administrative works and the transactions are properly executed and did not address the risk and detection of fraudulent activities.

Annual Paid leaves

This control was in placed which provided an insight into the workings of the trader. Moreover, other employees work on the trader account while the trader is on leave, therefore this helps in identifying any fraud that is being done by the trader. However, Kerviel prevents such control by having a reasonable excuse.

Internal promotion and recruitment

Internal back office employees are promoted or hired to new positions in the front office as a trader. Thus, they are well aware of the controls and might know the loopholes.

3. Apply the fraud triangle to and discuss the elements found in the Kerviel affair.

The fraud triangle describes the elements of Kerviel’s fraud in three aspects. First of all, the pressure to commit a fraud could be because of the reputation and the praises he has been receiving from his colleagues and the recognition in the workplace................

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