January 27, 2008	Sunday	Muharram 17, 1429

PARIS, Jan 26: French police questioned a junior trader on Saturday blamed for causing a $7 billion loss at bank Societe Generale after keeping his superiors in the dark for months about thousands of illicit deals.

A judicial source said Jerome Kerviel, 31, was in custody at the headquarters of the finance police in southeast Paris.

Police can hold suspects for an initial 24 hours of questioning and then seek a 24-hour extension before prosecutors decide whether or not to open the procedure for laying charges.

On Friday police visited the gleaming Societe Generale offices where Kerviel worked until last weekend, poring over his computer records, and also searched the apartment where he lived on the western outskirts of Paris.

Kerviel’s family say he is being made a scapegoat for the world’s worst rogue trading scandal.

The crisis was revealed on Thursday when SocGen said one of its more junior traders had found a way around internal checks to make huge bets on the future direction of stock exchange prices and then covered his tracks as losses piled up.

The bank itself discovered the illicit positions eight days ago and unwound them at the start of this week as financial markets plunged, compounding the losses.

Authorities are putting pressure on SocGen’s managers to explain how a bank that won accolades for innovation and boasted state-of-the-art risk controls could have been tripped up by a junior trader acting alone.

The scandal at Socgen struck at the height of a global credit crisis, set off by a meltdown in US sub-prime mortgages, which has forced banks around the world to take tens of billions of dollars in charges as the value of their exposures crumbled.

Sarkozy urges reform

French President Nicolas Sarkozy demanded changes to the running of international financial markets in the wake of the fraud scandal at Societe Generale, saying it was time to restore a sense of proportion.

“We have to put a stop to this financial system which is out of its mind and which has lost sight of its purpose,” Sarkozy said on today while on a visit to India.

“If one can make profits in a few hours, one can also make gigantic losses in a few hours as well. And it is time to realise that (we need) to insert a bit of wisdom into all these systems.”

When it announced the fraud, SocGen also unveiled a writedown of 2.05 billion euros on subprime-related exposures.

Until then, SocGen had not taken any significant charges despite constant market rumours it faced substantial liabilities.

The fraud scandal struck a heavy blow to SocGen’s investment banking business, which acquired an international reputation for sophisticated financial engineering.

A picture of how Kerviel was able to hide his massive trades has been gradually taking shape.—Reuters