Why is Societe Generale being fined for losing $7.7 billion?

Posted Jul 6th 2008 11:40AM by Zac Bissonnette
Filed under: Law, Scandals

The Wall Street Journal's lead (subscription required) tells the story without a hint of irony:

The French Banking Commission Friday said it fined Société Générale €4 million ($6.3 million) for failures in its internal procedures relating to the €4.9 billion loss linked to an alleged rogue trader fraud.

I'm all for regulating being tough on corporate governance, but this fine is a head scratcher. Isn't losing $7.7 billion a sufficient punishment for failures in internal procedures? Do we really need to tack on another $6.3 million. Is this supposed to serve as a deterrent? I can imagine the boardroom discussion:

"Ya know how we lost $7.7 billion?"

"Yeah! Who cares? It's just money."

"We're being fined 1/10th of 1% percent of that amount as punishment for it."

"Oh dear! We better get cracking on fixing our internal controls!"

I'm just not sure what the point of this fine and, by fining the company, the only ones who are hurt are the shareholders, albeit not on a material scale. This fine is the equivalent of giving time out to a child who just got hit by a car to teach him not to cross the street without looking both ways.

Tags: Societe Generale, SocieteGenerale

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Reader Comments (Page 1 of 1)

7-06-2008 @ 11:45AM

speculator said...

Fine someone millions when they already lost billions. Housing and banks are killing the world economy. Times are tuff for everyone except the super rich. They expect to spend more this year according to CNBC. Eli Broad said this is the worst economy since WWII.
www.theinvestingspeculator.com

7-06-2008 @ 2:15PM

Sally said...

I don't know about a fine, but not bailing out a private business that makes bad decisions seems more of a captialistic, free-market approach than the approach of the U.S. Federal Reserve bailing out Bear Stearns.
Corporations must take responsibility for their actions, which may mean more transparency to shareholders, who tend to suffer for the actions as much or more than corporate executives, who often have moved on or get golden parachutes to leave (are these high-pay retirement packages as common in other countries as they are in the U.S.A.?) Also, I'd like to see performance-based pay for corporate execs tied to more than just stock price, e.g., fiscal responsibility, employee retention, reducing ecological footprint, addressing human rights concerns, etc.)
Sally