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Calyon Trader Fired for $353 Million Loss Says He's No Rogue

2007-10-09 19:26 (New York)



By Pierre Paulden, Jacqueline Simmons and Hamish Risk

Oct. 10 (Bloomberg) -- The Calyon trader fired last month

for alleged unauthorized trading that led to 250 million euros

($353 million) of losses said his bosses knew what he was doing

and considered him a ``golden child'' of the New York office.

``There was nothing deceptive or rogue,'' Richard ``Chip''

Bierbaum, 26, said in an interview. ``My positions were reported

on a daily basis. It did not blow up. I expect there were some

losses but nowhere near the amounts they are discussing. I was

the golden child of credit trading in New York.''

Calyon, the investment banking unit of Paris-based Credit

Agricole SA, France's second-largest bank, said on Sept. 18 that

it had an ``unusually large market position'' that was ``above

the authorized limit'' and would cause third-quarter profit to

fall ``sharply.'' While Calyon didn't identify the people

involved, Bierbaum, whose stepfather is a descendent of John

Jay, the first chief justice of the U.S., said he was fired and

blamed for the trades on indexes linked to derivatives.

The losses would be the biggest from unauthorized trading

since John Rusnak's currency bets cost Dublin-based Allied Irish

Banks Plc $691 million in 2002. Management failures to oversee

derivatives traders allowed Nick Leeson to bankrupt Barings Plc

and Yasuo Hamanaka to hide $2.6 billion of losses from copper

futures at Tokyo-based Sumitomo Corp. while their employers

remained ignorant.


`Isolated Incident'


``The bank maintains that this is an isolated incident and

the work of an individual trader who did not respect our risk

procedures and who breached our trading limits,'' Calyon

spokeswoman Anne Robert said in an interview last week in Paris.

``The losses were the result of the cost to unwind these

unauthorized positions.''

Five of Bierbaum's superiors were also dismissed, according

to people with direct knowledge of the situation who declined to

be identified because the information wasn't publicly disclosed.

Calyon ousted Francois Pages, 50, the chief executive

officer of the U.S. unit, and Loic Fery, 33, global head of

credit markets, according to the people familiar with the

situation. Zain Abdullah, 37, Calyon's head of credit markets

and collateralized debt obligations in the U.S.; Jerome Le

Jamtel, 40, head of the credit and debt markets division of

Calyon Americas, and Thierry Hasse, 45, head of proprietary

trading in New York, also left the firm, the people said.

Fery, Le Jamtel and Abdullah declined to comment. Hasse and

Pages didn't return calls seeking comment. Calyon's Robert said

the bank ``has taken the relevant disciplinary measures linked

to the non-authorized transactions.''


Credit-Default Swaps


Bierbaum said he invested in indexes linked to credit-

default swaps that would profit if the Federal Reserve cut

interest rates, causing investor perception of credit quality to

improve. He declined to provide details of the trades.

Credit-default swaps are derivatives, financial instruments

derived from stocks, bonds, loans, currencies and commodities,

or linked to specific events like changes in the weather or

interest rates. Traders use the contracts to speculate on the

ability of companies to repay debt. The contracts pay the buyer

face value of a bond or loan in exchange for the underlying

securities should the company default.

On Aug. 17, the Fed lowered the so-called discount interest

rate that it charges banks by 0.5 percentage point, to 5.75


The move reduced the cost of credit-default swaps included

in the CDX North America Investment Grade Index to 60.51 basis

points on Aug. 24 from 78.33 on Aug. 16, showing that investor

perception of risk had diminished.


Credit Agricole


Credit Agricole said at the end of the month that a decline

in the value of fixed-income securities sparked by record U.S.

subprime mortgage foreclosures was having a ``limited impact''

on its business.

The index then switched direction and rose to 67.525 basis

points on Sept. 4, the day that Calyon said it discovered the

trade, according to prices from CMA Datavision in London. A new

version of the index is now at 44.75.

Calyon, created when Credit Agricole bought Paris-based

Credit Lyonnais in 2003, said the position was mainly built

during the ``last days of August, above the authorized limit and

without the authority to engage the bank at the level of this

trade.'' Credit Agricole's shares have lost 9 percent this year,

compared with the 5.2 percent drop for the Bloomberg Europe

Banks and Financial Services Index. France's largest bank by

assets is Paris-based BNP Paribas SA.




Bierbaum said he sent reports on his position every day to

his supervisors and Calyon's risk management department. He also

said the trade had made a profit of about $100 million before he

was placed on administrative leave. Bierbaum couldn't explain

how that turned into a $353 million loss. Banks typically

reverse bets that credit-default swaps will fall by purchasing

the contracts.

Calyon said on Sept. 18 that the position was back ``within

the normal trading activities.''

The statement that the trades were made without permission

is ``ludicrous'' and getting fired was a ``complete shock,''

Bierbaum said. He said he hired a lawyer, though he wouldn't

name the firm or provide more details.

``You would think that a bank would put limits on the

aggregate amount a 26-year-old could have to trade,'' said John

Coffee, professor of securities law at Columbia University in

New York, who has served on advisory committees to the Nasdaq,

New York Stock Exchange and NASD.

Derivatives can be harder to monitor than other financial

assets, such as stocks or currencies, because they trade

privately, said Frank Partnoy, a former debt trader who is now a

law professor at the University of San Diego.


`Doubled Down'


``Typically, these losses involve a trader who has lost

more money than he should and then doubled down,'' Coffee said.

``It's predictable. Like someone going to the race track, losing

all day and then betting the rent money in the final race to

make back losses.''

Leeson, whose currency derivatives caused Barings to

collapse in 1995, said continued losses show that banks don't

want to spend the money needed to prevent rogue trades.

``Over the last 10 years there have been several large

financial scandals that have lost billions of dollars and yet

people don't really have the systems and controls in place,'' he

said in an interview in Dublin on Oct. 4. ``You have to ask

yourself why.''

Bierbaum confirmed his mother is married to Henry T.

Mortimer Jr. Bierbaum's stepfather is also descended from Henry

Morgan Tilford, a former president of Standard Oil. Bierbaum

grew up in New York and attended St. Bernard's School, a private

boy's middle school in Manhattan.


`Emotional Issues'


During high school, he was sent to the Rocky Mountain

Academy in Bonner Creek, Idaho. The academy catered to teenagers

with ``behavioral and emotional issues'' before closing in 2005,

according to Julia Andrick, the former marketing director at the

school. She said the issues ranged from ``disrespecting

parents'' to drug and alcohol abuse.

``It was a place to be for a couple of years relative to

public school,'' said Bierbaum, declining to elaborate.

Bierbaum then attended Trinity College in Hartford,

Connecticut. In 2001 he was arrested in Suffolk County, New

York, for driving under the influence, according to records on

the Financial Industry Regulatory Authority's Web site. The

arresting officer found fake identification in Bierbaum's

wallet. Bierbaum said he pleaded guilty to disorderly conduct.

``I was a sophomore in college,'' Bierbaum said. ``I wasn't

aware of the consequences.''


LeFrak, Bear Stearns


After graduating from Trinity in 2003, Bierbaum spent four

months at real estate and investment firm LeFrak Organization in

Newport, New Jersey. His main job was to show apartments to

potential renters.

``He was a good soldier,'' said Jamie LeFrak, a 33-year-old

principal at the firm who is in a relationship with Bierbaum's

sister, Caroline. ``Chip is an honest guy who would certainly

check with his bosses,'' said LeFrak, grandson of the late real

estate billionaire Samuel LeFrak.

Bierbaum joined New York-based Bear Stearns Cos. in October

2003, where he processed trades and eventually became a junior

trader for one of the firm's hedge funds that collapsed in June

because of bad bets on securities linked to subprime mortgages,

his resume shows. Russell Sherman, a spokesman for the firm,

didn't return a call seeking comment.

Bierbaum joined Calyon in March as a trader making bets

with the firm's capital. He became a chartered financial analyst

in May, according to Kathy Valentine, spokeswoman for the CFA


``I would like to get back into credit trading,'' said

Bierbaum, who has remained in New York since being fired,

reading the newspapers and sending out his resume. ``I worry

about it,'' he said of the allegations that he was a rogue

trader. ``It's my word against theirs.''


--With reporting by Jacqueline Simmons in Paris, Caroline Salas

and Jody Shenn in New York, and Louisa Nesbitt in Dublin.

Editor: Moody (grs/rbg)


To contact the reporters on this story:

Pierre Paulden in New York at +1-212-617-5992 or;

Jacqueline Simmons in Paris at (331) 53 65 5055 or;

Hamish Risk in London at (44) 207 673 2928 or


To contact the editors responsible for this story:

Emma Moody at +1-212-617-3504 or;

Adrian Cox at +1-44-20-7673-2334;

Gavin Serkin at +44 207 673 2467 or gserkin@bloomberg.

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Ms DD   

Salaam Sophist


How can all these guys be in it together without being caught? Why arent the media making huge fuss over this? I think it is just politics.

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Originally posted by Sophist:

How on earth does this 26 yrs have no risk lemit; dont the platform have a VAR limit?

Maybe it has something to do with this: "While Calyon didn't identify the people involved, Bierbaum, whose stepfather is a descendent of John Jay, the first chief justice of the U.S.,... I suspect he was born with silver spoon in his mouth, connections can take you far places in the world of Hedge Funds and LBOs.

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