Theory Gains That Trader Had a Helpe

Theory Gains That Trader Had a Helpe

PARIS — The police investigating the trading scandal at Société Générale were moving on Sunday toward a theory that its rogue trader, whom the bank blames for losing it nearly $7.2 billion, might not have acted alone, as he and the bank have claimed.

The police have been sifting through nearly 2,000 pages of instant message traffic that the trader, Jérôme Kerviel, had sent. The police believe that he may have been trying to protect a friend who appears to have helped him cover his tracks — until one final, forged e-mail message made to look as if it had come from Deutsche Bank brought the case to light last month.

The instant message exchange adds to doubts about Société Générale’s explanation that Mr. Kerviel had engaged in the furtive trades alone, although lawyers say it does not necessarily weaken the bank’s assertion that there was no systemic fraud.
“There is a difference between a situation where two or more separate, isolated individuals cooperate with Kerviel and a situation where you have participation of his superiors, as he alleges,” said Christopher Mesnooh, an international business lawyer based in Paris.
Investigators suspect that Moussa Bakir, a 32-year-old broker at the futures brokerage Newedge, a subsidiary of Société Générale, sent Mr. Kerviel a forged e-mail message from Deutsche Bank, purporting to confirm a sizable trade in German DAX index futures that did not exist.
Late on the afternoon of Jan. 18, the day Société Générale says it uncovered roughly $74 billion worth of fictitious trades by Mr. Kerviel, Mr. Bakir indicated in a message exchange over the Reuters terminal system that he would send Mr. Kerviel documentation for an unspecified transaction.
“I’m sending you the conf,” Mr. Bakir wrote, using the shorthand for the confirmation of a trade.
Their messages — along with evidence that suggests they continued many of their conversations on cellphones — suggest that Mr. Bakir had an intimate knowledge of Mr. Kerviel’s surreptitious trading.
“They appear to have had a very close friendship,” the person said, adding that in many of their electronic messages there were also signals that they should continue their conversation on their cellphones.
Mobile phones are generally banned from bank trading rooms for security reasons.
One person with knowledge of the investigation said the police were trying to verify if the trade confirmation Mr. Bakir sent on Jan. 18 was the forged one Mr. Kerviel gave his supervisors to cover up an earlier mistake that had raised the suspicions of the bank’s compliance department.
Mr. Kerviel, this person said, had reported a large DAX futures trade that morning with a small German lender, Baader Bank, which would have required Baader to make a margin payment to Société Générale that would have exceeded Baader’s credit limit.
When questioned about the trade, Mr. Kerviel said he had made a mistake, and that the counterparty was actually Deutsche Bank. Mr. Kerviel was asked to provide proof that the trade with Deutsche Bank was genuine, this person said.
Later that afternoon, Mr. Kerviel presented compliance officers with the Deutsche Bank e-mail message. But when Société Générale double-checked, Deutsche Bank would not acknowledge the trade.
“We think this is the forged document from Deutsche Bank,” the person said of the confirmation referred to in Mr. Bakir’s message to Mr. Kerviel.
Mr. Bakir, who was arrested last week, was released on Saturday after 48 hours of questioning by French financial police, but he faces further questioning in the case.
A person with knowledge of the investigation said that, unlike Mr. Kerviel, Mr. Bakir had been less cooperative with police investigators.
Lawyers said his release suggested that he was considered a second-tier player compared with Mr. Kerviel.
One top Société Générale executive has told investigators that Mr. Kerviel rarely used his office e-mail account, sending no more than 60 messages over the last 12 months. But the transcripts showed that he actively used instant messaging.
The transcript suggests that Mr. Kerviel was aware of the gravity of his actions.
As early as October, when Mr. Kerviel’s trades were still profitable, their exchanges reflected signs of nervousness, according to excerpts, first published on the Web site of the magazine Le Nouvel Observateur on Saturday and confirmed by two people with knowledge of the investigation.
Christophe Reille, a spokesman for Mr. Kerviel’s lawyers, declined to comment on the transcript and described Mr. Kerviel’s relationship with Mr. Bakir as only “a professional one.”
Isabelle Montagne, a spokeswoman for the Paris prosecutor, said Mr. Bakir would be summoned again by two judges, but that no dates had been set.
A spokesman for Mr. Kerviel’s lawyer, Elisabeth Meyer, said they would file an appeal this week to have Mr. Kerviel released. He was placed in detention Friday for up to 12 months as the investigation continues.
James Kanter contributed reporting.

Rising Costs in China Seep Into U.S. Market

Rising Costs in China Seep Into U.S. Market
Importers Pay More or Cancel Orders

By Ariana Eunjung Cha
Washington Post Foreign Service
Saturday, February 9, 2008; Page D01

SHENZHEN, China -- A year ago, Mei Meng's factory sold foot-tall plush teddy bears, rabbits and ducks for export to the United States for $1.30 each. Now they're $2, and he doesn't rule out the possibility that prices will go up again.

Likewise, manufacturers say wholesale prices of cowboy hats made in China have gone from $1.65 to $2, cotton duvet covers from $3.30 to $4, portable electric ranges from $9 to $10 and office water dispensers from $50 to $56.

A confluence of events -- the weakening dollar, soaring domestic inflation, new labor laws, the end of some government export subsidies, the increasing cost of raw materials, more stringent product safety regulations, and bad weather -- means the cost of goods produced in Chinese factories is rising fast.

Those increased costs are already showing up in import prices. After falling for years, the price index of goods from China rose 2.4 percent in 2007, according to the U.S. Bureau of Labor Statistics division of international prices. That's the largest annual increase since the index was first published four years ago.

The added costs could compel U.S. companies to shift their manufacturing elsewhere -- particularly to Southeast Asia, where countries such as Cambodia have already seen an increase in U.S. investment.

Or the increases could be passed along to U.S. consumers.

That would mean that the cheap goods that were synonymous with China and allowed megastores such as Wal-Mart to dominate the U.S. retail sector will likely no longer be as plentiful.

"We'll see maybe a 5 to 10 percent increase in consumer prices, depending on who has power" in a specific part of the supply chain, said Sun Mingchun, a senior economist at Lehman Brothers.

As contracts between Chinese suppliers and U.S. importers are renegotiated in nearly every industry, Sun said that if consumers are lucky, increased costs could be absorbed anywhere from the Chinese manufacturer to an import-export company to retailers before hitting their wallets. If not, he said, the price of things like clothing and home appliances could jump significantly.

Among some economists, there's a larger concern: that inflation in China -- which was 4.8 percent in 2007, an 11-year high, and which forced the government to freeze prices of staples such as grain, edible oils and eggs -- is adding to inflation in the United States.

"In the past, the pressure of inflation in the U.S. mainly came from crude oil, but now it comes from developing countries like China, from those who provide the U.S. with cheap industrial products," said Li Huiyong, a senior analyst at Shanghai-based SYWG Research and Consulting.

The extent to which rising production costs in China affect the U.S. economy hinges on negotiations between suppliers and buyers. Chinese factory managers describe combative negotiations with U.S. importers regarding prices -- with each side seizing on every possible argument, including how long they have worked with each other, the size of their market and the quality of the work.