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Using Gas to Inflate Your Earnings, and Pay
Mark to market, meet mark to bonus.
Federal regulators today sued four men, accusing them of fraud for deliberately "mismarking" trading positions and causing Bank of Montreal to post a whopping $624 million loss on natural-gas trades in May 2007.
One defendant, former Bank of Montreal options trader David Lee, allegedly used the scheme initially to boost his trading profits and his incentive pay. When the market soured in 2006, the Securities and Exchange Commission said he used it to hide substantial trading losses.
Lee, 36, worked for BMO Capital Markets Corp., a wholly owned subsidiary of Bank of Montreal, the S.E.C. said. After the bank promoted him to managing director of the group in 2005, he began to record the inflated values.
Optionable Inc., a publicly traded commodities brokerage firm that relied on Bank of Montreal for 60 percent of its business, validated the numbers. The other three men sued today were Optionable employees: Kevin P. Cassidy, 49, of Bedford Hills, New York; Edward O'Connor, 55, of Briarcliff Manor, New York; and Scott Connor, 31, of Rye, New York. Cassidy and O'Connor were cofounders and alternately chief executive. Connor was a commodities broker.
Cassidy and the others also were accused of defrauding the New York Mercantile Exchange, which bought a $10 million stake in Optionable in April 2007. Federal authorities said Cassidy had failed to tell Nymex or his own investors that he had been convicted of federal tax evasion in 1993, and of credit card fraud and money laundering in 1997.
Lee, Cassidy and the others are charged with violating federal securities laws and the commission is asking that they be barred from future violations, disgorge their ill-gotten gains plus interest and pay civil money penalties.
They also face parallel criminal and regulatory charges filed today for the same conduct by the U.S. Attorney's Office. Lee pleaded guilty to parallel criminal charges filed by two other entities and agreed to pay $4.41 million in penalties.
by Elizabeth Olson
