The Debt Of Jerome Kerviel: A Lesson In Financial Mismanagement

Author Dalboyy 19 Nov 2024

Student loan payments got you down? Underwater mortgage? Credit card debt ballooning every month? No one likes being in debt, but no matter how high your monthly payments get, I guarantee they'll never be as bad as former French banker Jerome Kerviel's. Jerome Kerviel has the unfortunate distinction of being the most indebted human being in history. Does he owe millions? Tens of millions? Try $6.3 BILLION. That's right, Jerome Kerviel is a French stock trader who owes his former firm, Societe General, a mind-numbing $6.3 billion debt as part of a trading scandal dating back to 2008…

At just 31 years old, Kerviel was originally hired by Societe Generale in 2000 as part of the back office compliance department. Over the next six years, he worked his way out of compliance and onto the much more lucrative trading floor. On the trading floor, Jerome placed arbitrage bets with a variety of financial products including exchange-traded funds (ETFs), index futures, and swaps. Things were going well enough at first where he earned a base salary of $95,000 and a bonus of $77,000 in 2006.

However, by 2008, Kerviel's luck began to swing in the wrong direction. His bets were losing big, and to hide the losses, he started creating fictional trades to throw regulators and his bosses off the scent. This strategy may have worked for a short time, but as the worldwide economic crisis unfolded, Jerome's losses began to expand exponentially. Societe Generale discovered the fraudulent accounts and trading activity on January 19th, 2008, and three days later attempted to unwind all of the losing positions. After clearing all the bad trades, they faced a staggering loss of $6.3 BILLION. Kerviel was arrested on January 26th and charged with various securities violations.

The Consequences of Jerome Kerviel's Actions

Two years later, after a drawn-out legal proceeding, Jerome Kerviel was found guilty and sentenced to five years in prison. To make matters worse, he was also ordered to pay full restitution of the $6.3 billion to Societe Generale. You might wonder, how does someone pay back such an astronomical amount? The reality is that the judgment is largely symbolic and will never be paid off in any meaningful way.

However, Jerome's wages will be "significantly garnished" for the rest of his life. This means that for every dollar he earns, Societe Generale will take a substantial portion until the day he dies or stops working. Interestingly, Kerviel has the option of simply not earning a salary again. This was a strategy employed by OJ Simpson when the Goldman family won a $33 million wrongful death judgment against him. Although all of OJ's possessions were repossessed and sold at auction, he never worked again, leaving the Goldmans with very little of that $33 million.

What’s the most amount of debt you’ve ever had? I bet it doesn’t seem so bad now in comparison to $6.3 billion!