Paris -- French bank Societe Generale said Thursday it has uncovered a US$7.14 billion fraud -- one of history's biggest -- by a single futures trader who orchestrated a series of bogus transactions.
The fraud destabilized a major bank already exposed to the subprime crisis. France's second largest bank by market value said it must seek 5.5 billion euros (US$8.02 billion) in new capital, and the chief executive offered to resign.
Societe Generale Chairman and Chief Executive Daniel Bouton during the company's annual general meeting in Paris, May 14, 2007. SocGen has uncovered a fraud by one of its traders which will have a US$7.16 billion negative impact on the group, France's second-largest listed bank said on Thursday. [Agencies]
Trading in Societe Generale's shares, which have lost nearly half their value over the past six months, has been suspended.
The bank said it detected the fraud at its French markets division the weekend of Jan. 19-20. In a statement announcing the discovery, it called the fraud "exceptional in its size and nature."
A bank official said the trader "acted alone."
It said a trader at the futures desk had misled investors in 2007 and 2008 through a "scheme of elaborate fictitious transactions."
The trader, who was not named, used his knowledge of the group's security systems to conceal fraudulent positions, a SocGen statement said. An analysis confirmed the "exceptional nature" of the fraud, the bank said.
The trader confessed to the fraud, the bank said, and was being dismissed. His supervisors were to leave the group. Chief Executive Daniel Bouton offered his resignation but it was rejected by the board.
The trader at SocGen was responsible for basic futures hedging on European equity market indices, the company said, making bets on how the markets would perform at a future date.
Futures trading began with selling commodities like sugar or oil to be delivered at a specified date. The practice has expanded enormously in recent years to include extremely complex financial instruments, but the company statement said the trader was involved in the more basic forms of hedging.