( dpa ) - French judges late Monday formally initiated procedures against the French securities trader accused of engineering the biggest-ever financial fraud that could lead to charges of forgery and breach of trust against him, French media reported.
However, the magistrate handling the investigation decided not to pursue accusations of fraud against 31-year-old Jerome Kerviel and rejected a demand by the Paris public prosecutor's office to remand him in custody.
The Paris public prosecutor, Jean-Claude Marin, had demanded that Kerviel remain in custody for a limited period so that he would not be pressured by parties involved in the affair, which led to losses of 4.9 billion euros (7.15 billion dollars) for one of France's largest banks, Societe Generale.
According to Marin, Kerviel admitted under questioning that he had concealed unauthorized trading activities from his superiors at the bank, but he denied having acted for personal gain.
Marin said that Kerviel had explained that his scheme was intended to get performance bonuses and to impress his superiors that he was an exceptionally gifted trader. Kerviel also claimed that at the end of 2007 his trades had generated gains of some 1.5 billion euros for the bank.
President Nicolas Sarkozy on Monday suggested that heads should roll in the bank's hierarchy because of the affair.
Asked specifically about Societe Generale head Daniel Bouton, he said, "We are in a system where, when one is very well paid, and probably legitimately, and if there is a big problem, one cannot exempt oneself of responsibility."
Bouton said that he had offered his resignation, but was persuaded by the bank's board of directors to stay on.
In an interview published Monday in the Paris-based International Herald Tribune, the head of Societe Generale's corporate and investment banking arm, Jean-Pierre Mustier, said that the bank had ignored alerts regarding Kerviel's activities because they accepted his explanations over suspicious trades.
Mustier said that each time one of Kerviel's trades was questioned, he would simply call it a mistake and cancel the trade.
"But, in fact, he then replaced that trade with another transaction using a different (securities) instrument" to avoid being caught, he said, trying to explain how a junior trader could single- handedly build up positions of 50 billion euros (73.4 billion dollars) without being detected.
Experts in France and abroad had expressed doubts that one trader could dupe the bank's vaunted control system for as long as a year. But Kerviel told prosecutors that he had acted alone.
In a five-page statement released late Sunday, Societe Generale said that Kerviel had placed large purchases of stock index futures in one portfolio but then created fictitious sales transactions in a second portfolio, which offset "in appearance" the genuine transactions.
In effect, Kerviel was speculating huge amounts of the bank's money in transactions he was not authorized to carry out.
The bank said that, to evade the its risk management controls, Kerviel used several different "fraudulent methods," including other employees' computer access codes and false documents "to justify the entry of fictitious operations."
In addition, the bank said, Kerviel "ensured that the characteristics of the fictitious operations limited the chances of a control" by, for example, choosing operations with no cash movement or margin call and which did not require immediate confirmation.
Mustier said Kerviel first began creating the fictitious trades in late 2006 and early 2007, but that these transactions were small. They increased in size and frequency over last year.
The largest fictitious trades involved futures contracts on the Dow Jones Euro Stoxx 50, the DAX in Germany and the FTSE index in Britain and were placed in early January of this year, shortly before he was finally caught and admitted making the unauthorized transactions.
Societe Generale said it cleared its books of the position of 50 billion euros over three days, from January 21 to 23, incurring a loss of 4.9 billion euros because of "the sharp fall in Asian markets during the night of January 20 to January 21."
On Monday, the bank's share price continued to fall on the Paris Bourse, closing down nearly 4 per cent, at 71.05 euros. Societe Generale shares have lost more than 28 per cent of their value since the beginning of the year.