French police quiz trader blamed for SocGen losses

By James Mackenzie and Andrew Hurst

PARIS (Reuters) - French police on Saturday questioned a junior trader blamed for a $7 billion loss at Societe Generale after keeping his superiors in the dark for months about thousands of illicit deals.

A judicial source said on Saturday Jerome Kerviel, 31, was in custody at the headquarters of the finance police in southeast Paris. Suspects can normally only be held for 24 hours unless charges are laid.

Police on Friday visited the gleaming Societe Generale offices where Kerviel worked until last weekend, poring over his computer records, and also searched the apartment where he lived on the western outskirts of Paris.

Kerviel's family say he is being made a scapegoat for the world's worst rogue trading scandal.

The crisis was revealed on Thursday when SocGen said one of its more junior traders had found a way round internal checks to make huge bets on the future direction of stock exchange prices and then covered his tracks as losses piled up.

The bank itself discovered the illicit positions eight days ago and unwound them at the start of this week as financial markets plunged, compounding the losses.

Authorities are putting pressure on SocGen's managers to explain how a bank that won accolades for innovation and boasted state-of-the-art risk controls could have been tripped up by a rogue trader acting alone.

The scandal at Socgen struck at the height of a global credit crisis, set off by a meltdown in U.S. subprime mortgages, which has forced banks around the world to take tens of billions of dollars in charges as the value of their exposures crumbled.