The complaint alleges the bank misled investors about its exposures to the subprime mortgage market and failed to act on information about rogue trades
A US law firm has filed a lawsuit on behalf of Société Générale (SocGen) shareholders alleging that the bank misled investors about its exposures to the subprime mortgage market and failed to act on information about Jerome Kerviel’s trades.
The complaint, filed in federal court in New York, charges that SocGen and its chairman and chief executive officer, Daniel Bouton, misled investors regarding its activities and exposure in the subprime mortgage markets, and its lack of sufficient controls and failure to act on information it had regarding the unauthorised trades handled by junior trader Jerome Kerviel.
The case also involves alleged insider trading by SocGen's top US executive and board member, Robert Day.
“The case also involves alleged insider trading by SocGen's top US executive and board member, Robert Day.
SocGen is the second largest bank in France and the third largest non-US bank in the United States. As such, its shares are actively traded in both the US and on other international exchanges, and are widely purchased by US and European investors, who, as result of the actions of SocGen, have suffered significant losses.
The result of the fraudulent activity was that SocGen had to take write downs of close to $4bn relating to the subprime market, and $7bn in losses due to the highly risky trading by Kerviel, which caused a dramatic drop in share price and significant losses to investors.
Steven J. Toll, head of the securities group and managing partner at Cohen Milstein, said: "It is apparent that SocGen did in fact authorize a culture of risk to flourish, with the resulting detrimental impact to its shareholders. The enormous loss in the subprime market and the dramatic loss of $7bn in the trading department were completely unexpected to those investing in SocGen securities.’
“Seperately, a cash equities broker at SocGen was reportedly detained by French police investigating the rogue trading scandal.
Two weeks before the billions of dollars of SocGen's trading and subprime-related losses were revealed to the public, the top SocGen US executive and a board member, defendant Robert Day sold off millions of shares of their SocGen stock at artificially inflated prices, for proceeds of more than $140m (€95m). These sales are now the subject of investigations by the US Department of Justice, the US Securities and Exchange Commission, and French market regulators.’
The law firm said it is also investigating potential claims for European shareholders of SocGen who purchased shares on the European exchanges, with the possibility of seeking relief for those shareholders in Europe.
Seperately, a cash equities broker at SocGen was reportedly detained by French police investigating the rogue trading scandal.
The Cohen Milstein suit claims that during the class period, SocGen:
Made false and misleading statements and concealed material adverse information regarding SocGen's exposure to subprime loans, collateralized debt obligations (CDOs) and SocGen's internal controls
Touted SocGen's conservative management, risk control, and expertise in risk analysis and structured finance, including CDO vehicles
Misled investors by announcing that it had 'very little exposure' to the subprime segment
Ignored or failed to act upon numerous alerts which should have led to the uncovering of Jerome Kerviel's massive irregular trading activity from 2005 through early 2008