United States District Court, 500 Pearl Street, New York, NY 10007-1312
Hon. George B. Daniels, Room 21D (21st floor)
Prosecution: Martin I. Kaminsky (plus 1 associate)
Defense:
Optionable: Michael G. Bongiorno (plus 2 associates)
Cassidy: Lawrence R. Gelber
O’Connor: Liam O’Brien
Nordlicht: Eliot Lauer (plus 1 associate)
In attendance, but did not speak: Thomas Burchill President and Director of Optionable
Note: Audio recording isn’t permitted, so the following are my notes, taken to the best of my ability. It should be noted that I am long OPBL stock.
First up: Michael G. Bongiorno (for Optionable)
1) The class action suit dealt with many of NYMEX’s claims, and that case was dismissed.
2) Optionable did not gain from the sale of shares to NYMEX
3) NYMEX was a sophisticated investor who had the means and resources to fully scope out Optionable prior to their investment.
4) NYMEX’s complaint is totally dependent on accusations made in the CFTC and SEC complaints. This brought some hard questions from the Judge. The Judge seemed to be saying if an accusation was valid in one case, why shouldn’t it also be valid in this case? To me, it appeared that Defense was saying that the CFTC and SEC has a different level of detail (particularity) required to make an accusation than a company such as NYMEX has. In addition, examples were brought up where NYMEX misquoted the CFTC and SEC complaints – so that NYMEX was sourcing the CFTC for charges that weren’t even in the CFTC complaint. (See Side note #1)
5) The Judge did not voice any further hard questions for any other defendant.
6) Bongiorno summarized NYMEX’s other complaints as:
a. NYMEX says that Optionable lied to the SEC about the importance of BMO
b. NYMEX says that Optionable didn’t disclose Cassidy’s history
c. both of these arguments had been disposed of in the class action suit
Lawrence R. Gelber (for Cassidy)
1) Optionable was not the type of broker that made recommendations to either buy or sell. Rather Optionable matched buyers and sellers.
2) The type of trades at issue here are called “Straddles”. Straddles are a defensive purchase in which BMO could make money regardless of whether the market when up or down. Straddles are dependent on volatility rather than a price point. If volatility dries up, the straddle becomes less valuable.
3) In their press release about their losses, BMO stated that the volatility had dried up, and this was the cause of their large loss.
4) Gelber says that NYMEX is trying to claim that non-disclosure of Cassidy’s past equals concealment. However Cassidy’s past was a matter of public record and could not possibly be concealed.
5) Gelber says that 5 years (and not 10 years as NYMEX suggested) is the amount of time that prior convictions need to be disclosed. Gelber points out that the behavior that brought about Cassidy’s convictions happened in the late 80s to early 90s.
6) The “bribes” NYMEX is accusing Optionable of giving Lee and Moore average out to $83 per month. Lee and Moore each made over 200K per month, so the implication that their morals were compromised by Optionable’s gifts seems silly.
7) In asking the Judge to dismiss the charges (as the other defendant’s lawyers did) Mr. Gelber also asked the Judge to consider dismissing the case right then and there “from the bench” – which unfortunately did not happen.
Liam O’Brien (for O’Connor)
1) NYMEX does not source their accusations against O’Connor
2) O’Brien points out several paragraphs in the NYMEX complaint that incorrectly source other complaints.
3) Even if the accusations are allowed – they don’t meet the PSLRA & 9(b) requirements.
4) The Martin Act also precludes NYMEX from making this type of claim against O'Connor.
5) NYMEX completely ignored points in O’Connor’s motion to dismiss, so O’Brien assumes that NYMEX has conceded these points.
Eliot Lauer (for Nordlicht)
1) Nordlicht isn’t even named in some accusations that NYMEX is basing their case on.
2) Lauer takes issue with NYMEX labeling Nordlicht a 'controlling person' within Optionable.
Martin I. Kaminsky (for NYMEX)
1) Wants to refile the NYMEX complaint to include accusations BMO made. (NYMEX filed before BMO) (Judge was not supportive of this strategy)
2) NYMEX claims that Optionable made a warrantee to NYMEX that Optionable was not doing anything illegal in their business dealings. NYMEX claims that Optionable's warrantee constitutes fraud.
3) NYMEX claims that Optionable lied to the SEC when it said it had a lawfully conducted business.
4) NYMEX claims that Optionable told NYMEX that all NYMEX needed to know about Optionable was contained in Optionable’s SEC filings.
5) NYMEX (in the courtroom, not in their complaint) says that they hired their own investigators who spoke with ex-employees of Optionable. NYMEX volunteers this information but doesn’t make an accusation based on that investigation.
6) The Judge seriously took issue with NYMEX’s inability to say what it was that Optionable supposedly said that caused NYMEX to later believe that it had been lied to. Kaminsky kept going back to the notion that Optionable’s SEC filings were the fraud made on NYMEX – because Optionable told NYMEX that their SEC filings were accurate.
7) The Judge asked Kaminsky what specific facts he would want to take from BMO’s complaint if the Judge allowed them to be included. {note – Kaminsky did reply with an example – but I didn’t grasp it – to which the Judge replied “those are not facts”.
8) Kaminsky stated that NYMEX did not need to PROVE their case in their complaint, they only needed to show that it was likely that fraud occured.
Side notes / personal notes:
1) It took me a while to get the significance of Bongiorno's point #4 (above). We know that the NYMEX case is dependent on the CFTC and SEC complaints. We know that both of those complaints are being reviewed for dismissal by Judge Daniels. We know that if those complaints are dismissed then the NYMEX complaint falls apart. (Which is why NYMEX now wants to add BMO's complaint to their own.) But what I didn't grasp at first was that if Bongiorno can claim that NYMEX is not eligible to use the CFTC and SEC complaints (because the Government has lower requirements than other plaintiffs) then the NYMEX complaint should fall apart EVEN IF the CFTC and SEC complaints survive their motions to dismiss. This explains why Judge Daniels was taking a harder stance on this point than anything else the Defense said....... Bongiorno was trying for a Grand Slam here.
2) In pointing out some of the errors in NYMEX's complaint, one of the defense lawyers mentioned that NYMEX claimed that Optionable made excessive wedding gifts to David Lee's sister. David Lee however does not even have a sister.
3) In regards to the bi-monthly reports at the heart of all the charges against Optionable, one of the Defense lawyers pointed out that a) prior to the paid RealMarks reports, Optionable provided these reports for free as a courtesy to BMO and b) Optionable employed several brokers who made these type of trades 'all day long' and as such they were qualified to be able to determine if Lee's marks were 'reasonable' without 'shopping them around the market' c) Optionable never promised to obtain 'independent' marks, rather they offered to review them for 'reasonableness'
4) Mr. Burchill sat by himself and looked sad. I wanted to buy him a cup of coffee.
5) In the middle of the arguments, the Judge needed to attend to two criminal cases. I sat through most of these as well, and found it interesting to hear the Judge deal with what appeared to be repeat offenders in drug dealing. The two NYMEX lawyers sat next to me during those proceedings.
6) The tables for the Prosecution and the Defense were not side by side in this court room, but rather front and back. Prosecution sat in front, the Defense in the back. The Defense table was CROWDED. I couldn't help thinking that was a heck of a lot of legal talent to defend a company with 4 million in cash left in the bank... even with Cassidy, O'Connor and Nordlicht paying their own way.
7) While the Judge grilled Kaminsky pretty hard, he did allow him to talk for a long time. I made the mistake of tuning him out after a while - and then I got nervous when I 'woke up' and realized that if he is talking this long, he might have actually said something. The Judge appeared to have been listening to every word - for better or worse.
8) Worth reading: Wikipedia defines the PSLRA: http://en.wikipedia.org/wiki/Private_Securities_Litigation_Reform_Act
