What The Auditors Saw – An Update on Société Générale

Prentice: It’s a fascinating theory, sir, and cleverly put together. Does it tie in with known facts?
Rance: That need not cause us undue anxiety. Civilizations have been founded and maintained on theories which refused to obey fact.

“What The Butler Saw”
Joe Orton, 1969

Kerviel’s lawyers question Société Générale accountants

PARIS: Jérôme Kerviel, blamed by Société Générale for the record trading loss it took this year, met Monday with accountants from Ernst & Young and Deloitte Touche Tohmatsu to ask about alerts they may have sent to the bank.

The meeting focused on how much auditors had known and told the bank about its exposure to what became €50 billion, or $68 billion, in unauthorized futures positions that cost Société Générale €4.9 billion to unravel in January.

The bank’s assertions that it had not known know about Kerviel’s activities are “a smoke screen,” Bernard Benaiem, a lawyer for Kerviel, said before entering the interview in the offices of judges leading the investigation. “E-mail exchanges from their auditors kept them aware that the trades didn’t exist.”

The lawyers for Kerviel also planned to ask about the findings of the French banking commission in the case. The commission fined Société Générale €4 million in July for failing to comply with rules on internal controls. The report, which was not made public, was recently shared with Kerviel’s legal team.

The auditors’ evidence is “of no concern” to the criminal case against Kerviel, a Société Générale lawyer, Jean Veil, said during a break in the proceedings Monday. The bank’s legal team also represented the auditors at the meeting.

Well, it’s about time Ernst and Young and Deloitte, dual auditors under French law for Société Générale, made an appearance. Does anyone else find it very odd that it seems the bank’s lawyers also represented the auditors in these depositions related to the criminal proceeding against Kerviel? Are the auditors’ interests aligned with each other? Are the auditors’ interests aligned with management of the bank? And are the interests of the bank’s executives aligned with interests of shareholders? What will happen when the auditors must part ways with their client to save their own skin? Or when management of the bank decides to blame auditors for not telling them enough, with enough vigor, often enough, and soon enough.

Maybe this is how the French do things, all clubby-like.

Société Générale just yesterday requested an investigation into rumours that it would experience heavy additional losses from structured products. On the contrary, according to the bank, they’ve had a great third quarter. It may be French pride or more of the same obfuscation. But I would be très sceptique of anything these guys say given the current environment, especially since it seems they have their auditors, as well as PwC , in their pockets.

That’s a Big 3/4 trifecta!

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