Jerome Kerviel went to trial Tuesday over unauthorized trades that cost French bank Societe Generale 4.9 billion euros ($6 billion) in 2008.
His lawyers will argue that he is the victim, not the culprit, in the huge trade, the unwinding of which rocked stock markets at the time.
Kerviel, 33, is charged with abuse of trust, falsifying documents and hacking into bank computers.
If convicted, he faces five years in jail and a fine of 375,000 euros ($498,000). But it's hard to get someone convicted on such charges, a lawyer told CNBC.com.
“It’s hard because of the complexity of what these individuals do," Nicholas Lakeland, lawyer at Silverman Sherliker, said. "In France they have an inquisitorial system so it will be magistrates who hear the case and decide on guilt or innocence.”
“If this was a fraud trial in England, a jury of lay people would find it nigh on impossible to understand how the crime has been committed or whether a crime has been committed at all,” Lakeland added.
Societe Generale published documents linked to the case on its Web site, saying it wishes to "permanently close this painful chapter in its history."
"It is important not only for Societe Generale and its employees, but also its clients, shareholders and society as a whole, that Mr. Kerviel’s crimes are permanently established and judged, and that the financial and reputational damages that he caused are acknowledged," the bank said on its Web site.
At the heart of Kerviel's defense is that his actions were merely a product of his aggressive environment.
"We are going to prove that the deals were visible for Societe Generale, that Societe Generale authorized them,” Olivier Metzner, Kerviel's defense attorney, told CNBC.com.
Metzner is one of France's top lawyers, with a formidable client list including former Panamanian dictator Manuel Noriega and former French Prime Minister Dominique de Villepin.
His defense is based on several arguments: supervisors tolerated breaches in SocGen's risk control system; Kerviel's management was aware of his trading, but didn't say anything as long as he was making lots of money; he was just doing the same as some other traders and he didn't make personal profits, and that he just wanted to make big money for his bank.
Kerviel wasn't doing anything particularly devious or illegal, according to Metzner, and he took the bank's failure to intervene as permission to continue.
"He didn't commit any crime. If he made a mistake, he was lured into it by the bank," Metzner said.
SocGen denied that Kerviel's supervisors were aware of the risks of his trades, but did not stop him because he was making money.
Focus on the Motive
Rogue traders tend not to act out of greed, they care more about winning, analysts told CNBC.
And like most criminal trials, motive may be important. “The prosecutors will need to prove criminal intent. Motive is something courts look at to determine intent,” Matthew Menchel, managing partner of Kobre & Kim law in Miami, said.
Menchel defended Brian Hunter, the hedge fund trader accused of market manipulation in natural gas futures back in 2006. The now-liquidated hedge fund Amaranth managed $9 billion in assets, but lost $6 billion in the natural gas market due to highly leveraged trades Hunter amassed for the company.
But when a defendant recognizes an act is dangerous and decides to commit it anyway, this is recklessness - and may work against Kerviel, according to Menchel.
“If they have evidence of falsely constructed e-mails supposedly from a counterparty, that’s pretty damning,” he said.
Kerviel's lawyer said he only did what other traders were doing.
"I have the example of a person who made a profit and the bank said nothing, they just thanked that person," Metzner said.
But in a document based on excerpts from the Order related to the Committal for Trial of the case in August last year, listed on SocGen's Web site, Kerviel is quoted as admitting to hiding the positions from his losses.(Click the link for the documents on Societe Generale's site).
"Often, in the morning," the former trader is quoted as saying, "I received, as did my bosses, notification of major exposures in some of my portfolios.
"I then entered a fictitious transaction without informing my bosses to conceal these open positions."
Bank Turned a Blind Eye?
In 2007 alone, there were 74 alerts about Kerviel’s activities, including two from the European derivatives exchange, Eurex, and each time he emerged unscathed.
“Remember, that the senior people at SocGen did not intervene until the profits turned to losses and this, I would imagine, would be the nub of Kerviel's defense,” Franklin Price, head of litigation at Jeffrey Russell Green, said.
“It sounds like the defense is going for a theory of nullification," Menchel said. "They’re hoping the facts will show that Kerviel’s employer allowed these unauthorized trades to happen, and therefore, he shouldn’t be held liable."
The bank denied it authorized or condoned the trades and said that, as soon as the fraud was discovered, it took action to "reinforce and adapt the internal controls related to trading activities."
In the British system, where such cases are judged by juries, if the defense demonstrates that senior management knew what Kerviel was doing and condoned his behavior, he may not be convicted, Price, a UK-based lawyer, said.
"This is similar to jury nullification where ordinary people will not convict someone who they believe has been set up by senior management to take the fall,” Price explained.
To win, Kerviel's lawyer will have to prove that his client "has not lied and done anything underhand,” he said.
Rogue Trading “Déjà Vu”
The malfeasance of the Kerviel scandal has parallels with the historical cases of other rogue traders, particularly the former derivatives broker Nick Leeson, who was sentenced to six-and-a-half years in prison for unauthorized trades that caused the collapse of Barings Bank in 1987.
But the difference in this case is between civil and criminal charges. “Sometimes the line between civil and criminal cases is a fine one,” Menchel said. “Simply violating trading limits is a far cry from criminal wrongdoing.”
In Brian Hunter’s case, he faced neither jail nor criminal charges. "The Kerviel and Hunter cases are like apples and oranges,” Menchel said.
Other legal experts believe the Kerviel case is unique because SocGen could be seen as conspirators. “The interesting thing might be whether in ignoring his actions his bosses could be said to be conspiring with him to commit the crime…. clearly that requires them taking positive steps in assisting him to commit a crime.," Lakeland said.
He added, "From what we know of the evidence which has made it into the public domain it seems he is alleged to have falsified e-mails and crated fictitious counterparties which therefore all indicate he intended to commit a fraud of some sort.”
Kerviel has said all along that he knew what he did was not right. But his defense may try to create a grey legal zone where he was doing something unambiguously wrong, but perhaps legal.
Kerviel's trial and market confidence
But some experts believe this grey zone is imaginary. “Fraud is fraud,” Lakeland said. “It is not difficult to tell if someone has lied, falsified documents and created fictitious counterparties.”
“I don't think it’s a strong defense to say, ‘I committed a crime, others knew it and said nothing.’ It's still a crime whether his superiors stopped him committing it or not,” he added.
Restoring Market Confidence?
The verdict in the case could have some impact on how banking is regulated in the future, as well as how confident investors are.
“Regulatory bodies such as the FSA are increasingly imposing significant financial sanctions on banks who fail to properly control their employees,” Lakeland said.
In Kerviel’s case, the French central bank fined Societe Generale 4 million euros.
A “guilty” verdict it may work in the market’s favor, if it convinces the public that the big violators will be punished, according to some analysts.
“Amaranth became a scapegoat in the unfortunate rise in natural gas prices in 2006,” Menchel said. “Everyone’s happy as long as they’re making money. As soon as the market turns sour, lot of people look for someone to blame.”
For now, Kerviel looks to be ready to tackle his former boss head-on. "He's in a fighting mood… to fight to be able to tell the truth," Metzner said.
Metzner declined to comment on what kind of prison term would receive if he gets convicted. "We are going to fight to avoid that."
- Antonia Oprita in London contributed to this article.More European News