This case illustrates the tension/balance that firms with complex and risky business models must consider in designing their internal controls. It describes the environment in which a derivatives trader engaged in massive directional positions on major European stocks and indexes without being detected for over a year.

Learning objective: To understand the importance of internal control systems in a business environment that involves a high degree of risk and complexity.

After reading the case, prepare a 2–4 page written response to answer the following questions:

  1. If it were 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?
  2. Identify the internal control systems in place to address traders and trading risk.
  3. Apply the fraud triangle to and discuss the elements found in the Kerviel affair.
  4. Who is to blame? Explain.
  5. Is Kerviel a victim or a villain? Explain.
  6. Is it possible to prevent such incidents? Why or why not?

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societe generale the jerome kerviel affair acc533

This case illustrates the tension/balance that firms with complex and risky business models must consider in designing their internal controls. It describes the environment in which a derivatives trader engaged in massive directional positions on major European stocks and indexes without being detected for over a year.

Learning objective: To understand the importance of internal control systems in a business environment that involves a high degree of risk and complexity.

After reading the case, prepare a 2–4 page written response to answer the following questions:

  1. If it were 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?
  2. Identify the internal control systems in place to address traders and trading risk.
  3. Apply the fraud triangle to and discuss the elements found in the Kerviel affair.
  4. Who is to blame? Explain.
  5. Is Kerviel a victim or a villain? Explain.
  6. Is it possible to prevent such incidents? Why or why not?

 

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