Societe General is in big trouble—about $7 billion worth of trouble. Today, it was revealed that the French banking giant suffered this staggering fraud loss at the hands of trader Jerome Kerviel. The bank said it will seek emergency funds as a result, according to a Reuters report. The implications of this huge oversight are many.

How can a bank of SocGen's size (and reputation) have missed what was occurring? Such sizeable fraud doesn't usually occur overnight. This fraud was the result of either people or technology. After what I've been hearing with regard to the subprime mess, I'm inclined to say that it was most likely a people problem. Someone at SocGen dropped the ball and let this trader get away with financial murder. Surely there were clues along the path to destruction that indicated something was amiss—that's what risk management and fraud prevention software is designed to do. But people are the ones who ultimately have to analyze the readouts produced by the software. Then again, I could be wrong. What if the technology in place was inadequate? What happens to the vendor?

Well, according to newly emerging reports, SocGen might actually have been turning a blind eye to such activities. Also, it looks like fraud runs in Kerviel's family. The UK's Daily Mail revealed that his brother Olivier was fired from a bank job for "trying to get rich off the back of his clients."

But perhaps the most dramatic development is that Kerviel, although not completely exonerated of all charges, pretty much gets off with a slap on the wrist (relatively speaking) as the most serious charge of attempted fraud was dropped against him (pending further investigation,of course). In fact, Kerviel is playing the scapegoat card, saying he was only doing his job., did not profit from the activities personally and was simply trying to advance his career.

Well, I guess in some twisted sort of way, the news is a refreshing change of pace from all the subprime mortgage fallout we've been hearing about lately! Although at least one analyst thinks it was for this very reason that SocGen missed what was happening on the trading side—it was focused too much on its own subprime losses.

But what do you think went wrong at SocGen? Feel free to leave your comments below.

And for more on the how's and why's behind the SocGen mess, read How Did the Societe Generale Fraud Happen? by Melanie Rodier from our sister publication Wall Street & Technology.

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