Behavioural Patterns in Rogue Trading: Analysing the Cases of Nick Leeson, Jérôme Kerviel, and Kweku Adoboli

Rafeld, H., Fritz-Morgenthal, S., and Posch, P. (2017). Behavioural patterns in rogue trading: Analysing the cases of Nick Leeson, Jérôme Kerviel and Kweku Adoboli. Journal of Financial Compliance, 1(2): 156–71.

21 Pages Posted: 29 Mar 2017 Last revised: 4 Jan 2018

See all articles by Hagen Rafeld

Hagen Rafeld

Technical University of Dortmund

Sebastian Fritz-Morgenthal

Frankfurt School of Finance & Management gemeinnützige GmbH; Bain & Company

Peter N. Posch

TU Dortmund University

Date Written: September 15, 2017

Abstract

When analysing great financial disasters of our time, rogue trading and related protagonists come into play immediately. Rogue trading is a reoccurring phenomenon, gaining immense public attention due to the perceived mismatch between large-scale organisations on the one hand and individual employees bringing these organisations into enormous trouble on the other. It furthermore links to the understanding of fraudsters like rogue traders, embedded in (un)ethical organisational corporate corpuses. This paper employs Tittle’s control balance theory (CBT) to explain rogue trading as a special form/subset of white-collar and corporate crime. We use CBT to analyse the anatomy – including modus operandi, risk management failures and control weaknesses, as well as early warning signals – of three major rogue trading losses from recent investment banking history, that is Nicholas (‘Nick’) Leeson at Barings Bank, Jérôme Kerviel at Société Générale, and Kweku Adoboli at UBS, totalling an accumulated loss exceeding US$ 10.5bn. We draw conclusions regarding the explanatory power of CBT in light of rogue trading, as well as behaviour risk management and control in order to prevent rogue trading, and outline future areas of research.

Keywords: behaviour risk management, control balance, deviance, rogue trading, unauthorized trading

JEL Classification: K42, M14, P37

Suggested Citation

Rafeld, Hagen and Fritz-Morgenthal, Sebastian and Posch, Peter N., Behavioural Patterns in Rogue Trading: Analysing the Cases of Nick Leeson, Jérôme Kerviel, and Kweku Adoboli (September 15, 2017). Rafeld, H., Fritz-Morgenthal, S., and Posch, P. (2017). Behavioural patterns in rogue trading: Analysing the cases of Nick Leeson, Jérôme Kerviel and Kweku Adoboli. Journal of Financial Compliance, 1(2): 156–71.. Available at SSRN: https://ssrn.com/abstract=2942386 or http://dx.doi.org/10.2139/ssrn.2942386

Hagen Rafeld (Contact Author)

Technical University of Dortmund ( email )

Emil-Figge-Straße 50
Dortmund
Germany

Sebastian Fritz-Morgenthal

Frankfurt School of Finance & Management gemeinnützige GmbH ( email )

Sonnemannstr. 9 -11
Frankfurt, G02, G11,
Germany

Bain & Company ( email )

Neue Mainzer Strasse 80
Frankfurt, MA 60311
Germany

Peter N. Posch

TU Dortmund University ( email )

Otto Hahn Str. 6
Dortmund, 44227
Germany

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