Fraud Means Write-Down, Another Lesson

As the worries for a slowing global economy following the US's continue, with effects on many markets in the world, (European) markets started the day with another write-down report subject to an amount of $7.16 billion. Wall Street Journal on the story:

The bank, France's second largest after BNP Paribas SA, revealed early Thursday that it had detected a case of "exceptional fraud" due to a single trader who had concealed enormous losses through a scheme of "elaborate fictitious transactions."

This is probably one of the biggest single trading frauds in the business history. It's more than the one which bankrupted and collapsed major British bank Barings in 1995 starring rogue trader Nick Leeson. The damage, resulted from futures trading, was around ₤1 billion in that one.

Every time I hear about such fraudulent incidents, I feel a deep curiosity for the event's whys and hows. As a novice business ethics blogger myself, I wonder about the motivation behind such a major scheme. What would drive a professional (?) with an annual income of €100.000 and a pretty cool title at a bulge-bracket European investment bank, to act in such an idiotic manner? In my opinion, there is only one chance: He just could. I mean, he was able to do, to act that way, and he did. So here comes the how question. How could it be possible for a guy, no matter who, to get over the control procedures of this major corporation through “fictitious transactions” and result in this kind of a huge mess? (Although it looks like similar to the Barings Bank case, it was Leeson's everlasting mistakenly selected futures strategies which triggered the whole wheeling and dealing to blow up.) Pardon me for my lack of business experience but for crying out loud, it's not $500.000 or, say, €1 million. It's billions right here! Although the bank had been able to unwind that guy's moves, that probably is neither the best answer nor the ideal solution.

I would like to add that the CEO Daniel Bouton apologized - :( - to the shareholders and stated that the bank wouldn't offer bonuses for 2007. Fitch Ratings was the first to downgrade the bank's default rating to AA- from AA, following these news and comments. So here we are with the “personal integrity” issue once again... To glorify and humiliate a corporation is so easy when it comes down to personal integrity issues. That's the common feature/result of all these fraudulent affairs.

Message from Daniel Bouton to clients