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The Cautionary Tale of the World’s “Most Indebted Man”

By Poulpy (Own work) [CC BY-SA 3.0 (http://creativecommons.org/licenses/by-sa/3.0)], via Wikimedia CommonsIt seems as though most people, at least in the United States, carry some form of debt. A debt history is actually a prerequisite for many major milestones, such as purchasing a home, so being too disciplined with one’s debt can have an ironically detrimental effect. Most people would agree, however, that too much debt is generally a bad thing. The story of the man identified by The Atlantic as the most indebted man in the world offers something of a cautionary tale about out-of-control debt, although since he was born in France and continues to live there, U.S. bankruptcy law does not apply to his case.

Jérôme Kerviel worked for the French bank Société Générale as an arbitrage trader, which involves short-term trades of securities based on price discrepancies. Traders identify securities that should have the same price but don’t. They buy the cheaper securities, known as taking a “long position,” and take a “short position” by selling the more expensive ones. Since the price discrepancies are usually measured in fractions of cents, trading in volume is necessary to make money.

Kerviel was accused of taking multiple long positions while fabricating short positions. This artificially inflated the price of the long-position securities and appeared to make billions of euros for Société Générale, at least for a while. His unauthorized trades allegedly approached €49.9 billion. When the bank discovered what had happened, it closed out those market positions over a three-day period in January 2008, at a total loss of about €4.9 billion, or $7 billion at the time.

Prosecutors charged Kerviel with abuse of confidence and illegal access to computers but were not able to charge him with fraud. He was convicted on both counts in 2010 and sentenced to three years in prison. An appellate court upheld the conviction and sentence in 2012, and after a second appeal failed in 2014, he reported to prison. A court approved his request for early release in September 2014 after only five months but ordered that he must remain under electronic supervision for the remainder of the three years.

Most people are not likely to find themselves in a position like Kerviel’s, if for no other reason than most people do not have access to that much money to invest in the stock market. While his seemingly short prison sentence and even shorter actual time in prison may seem overly generous, the court’s restitution order—$6.3 billion—is quite harsh. French media noted that a person earning France’s minimum wage would have to work full-time for 370,000 years to repay this amount. It is also the same amount one might pay to purchase 20 brand new Airbus A380 jets.

So how will Kerviel repay $6.3 billion? It seems unlikely that he ever will. If this had occurred in the U.S., the restitution order could be excepted from discharge if a court found that it was the result of “fraud or defalcation while acting in a fiduciary capacity.” 11 U.S.C. § 523(a)(4). He will probably have to work out some payment arrangement and face garnishment of his wages, as well as any significant gains or windfalls, for the rest of his life.

Devin Sawdayi has handled Chapter 7 and Chapter 13 personal bankruptcy cases for Los Angeles individuals and families since 1997, helping them rebuild their finances with dignity and respect. To schedule a free and confidential consultation with a member of our experienced and skilled team, contact us today online or at (310) 475-939.

More Blog Posts:

Embezzlement Judgment Does Not Prevent Debtor From Exempting Proceeds of Civil Lawsuit Against Creditor, Los Angeles Bankruptcy Lawyer Blawg, November 14, 2014

California Bankruptcy Court Rules on Dischargeability of Debt Allegedly Incurred through “False Pretenses”, Los Angeles Bankruptcy Lawyer Blawg, July 27, 2014

Supreme Court Rules on Meaning of “Defalcation” in Statutory Provision for Nondischargeable Debts in Bankruptcy, Los Angeles Bankruptcy Lawyer Blawg, July 30, 2013

Photo credit: By Poulpy (Own work) [CC BY-SA 3.0], via Wikimedia Commons.