Prosecutors let SocGen fraud rap drop: source

PARIS (Reuters) - French prosecutors will not appeal against a decision to throw out the accusation of fraud leveled against a trader blamed for huge losses at Societe Generale, a senior judicial source said on Tuesday.

If confirmed, the move would represent a blow for SocGen managers, who last week branded trader Jerome Kerviel a "fraudster" and said the bank had been the victim of "massive fraud".

The judicial source said it was also "inevitable" that many staff within SocGen would be questioned over the affair.

Investigating judges reviewing the case decided on Monday to place Kerviel under formal investigation for lesser allegations concerning breach of trust, computer abuse and falsification, which carry a maximum three-year prison term.

Being placed under investigation can lead to trial, but falls short of filing formal charges.

Prosecutors had asked the magistrates also to consider charges of fraud and "aggravated breach of trust", which carries a maximum seven-year prison term.

Judges Renaud Van Ruymbeke and Francoise Desset decided there was not enough evidence to back this up. They also rejected a request by prosecutors that Kerviel remain in custody as investigations continue.

The judicial source said although prosecutors have decided to let the fraud decision pass, they have appealed against Kerviel's release. However, they have not fast-tracked the request, and a ruling could take up to two weeks.

Kerviel has told police he concealed trades because he wanted to enhance his reputation as a trader, not out of any desire to hurt the bank. He admitted hiding his activities from superiors, but said fellow traders had also shunned bank rules.

(Reporting by Thierry Leveque; Writing by Crispian Balmer; Editing by Quentin Bryar)