Some thoughts on the Government's 2/17/11 Memorandum of Law

• Ex-BMO employee David Lee will appear as a Government witness in Kevin Cassidy's criminal trial. Lee will admit that he mismarked his book while employed by BMO. (His "book" is his entire portfolio of Natural Gas Options. His "marks" are what he claimed those Options were worth.)
  
• The Government started with 6 Counts against Cassidy, but have dropped it to 3.
  
• The Government has narrowed the scope of its complaint. My summary of their narrowed scope is:
• 1) The Government will say that Cassidy agreed to "rubber stamp" Lee’s marks.
• 2) The Government will say that Cassidy presented reports to BMO as being independent of Lee’s marks, but they weren't. They're going to call this activity "wire fraud" because the reports were emailed and/or faxed.
  
• 3) The Government will say that Cassidy filed reports with the SEC and sold stock to NYMEX without disclosing the practice of rubber stamping Lee's reports. They're going to call that activity "securities fraud" even though Cassidy and Optionable had not been accused of any wrong doing when the reports were filed with the SEC or the shares were sold to NYMEX.
  
• The Government is dropping the murkier parts of their charges that implied that Cassidy had a role in Lee’s mismarking deception. The Government is going with the notion that these 3 items are enough to convict Cassidy. It certainly does help boil the charges down to something that a jury can wrap their heads around.
  
  
• HOWEVER – Here are some things that I’m thinking
  
  
• "Rubber Stamping" sounds bad and unethical, but "baselining" sounds good. When I say that I think Cassidy "baselined" Lee's marks, here's what I mean. I think Lee sent Cassidy a list of marks to verify, and Cassidy took that list, verbatim, and checked each mark for "reasonableness". As long as the mark was "reasonable" he sent it back to BMO unchanged. (NOTE - This is my own THEORY - I have not seen anything from Cassidy stating that this is what happened - as Cassidy has not yet stated ANY sort of defense)
  
• Neither the Government nor BMO has presented any type of documentation that says that Lee's marks were supposed to have been excluded from Cassidy's report. Basically, I'm thinking if it was "criminal" of Cassidy not to have identified Lee as the source of the marks, somebody somewhere should have written down that this was a Requirement. They didn't.
  
• (Also - See my blog post from last year called "You call THAT a Smoking Gun?")
  
• The Government has presented some grids that Lee sent for which Cassidy’s report was only different by 1 or 2 numbers. Let’s call those grids “Bingo grids" because the baseline marks Lee sent were nearly identical to Cassidy's report back to BMO. I'm curious if all the reports were that close or just a few choice ones that the Government selected to present as evidence. Cassidy was sending reports for 4 years - and that's a lot chances to get one or two "Bingos".
• Lee didn't ask Cassidy to check the reasonableness of every mark in his portfolio (book) every month. He sent Cassidy a few sample marks. Since the Government is no longer accusing Cassidy of participating in Lee's mismarking scheme, they are also seeking to ignore the question of whether or not the sample of marks that Lee sent to Cassidy were actually accurate (or at least 'reasonable') (In short - the Government could be trying to convict Cassidy of defrauding BMO by sending them ACCURATE (reasonable) information.
  
• Lee is going to admit in court that he mismarked his portfolio (book). But Lee also lost a lot of BMO's money fair and square when the volatility in natural gas options dried up. BMO would have lost a lot of money even if Lee had marked his portfolio correctly and I don't see BMO taking ownership of that.
  
• The reports in question were not system generated reports based on hard data. The reports were more of an opinion poll taken by brokers of the traders they worked with. It makes perfect sense to me that Lee's "opinion" (his marks) would be given a hefty weight given that Lee was Cassidy's biggest client and he expressed his opinion every time he made a trade.
  
• BMO’s Independent Valuation Team provided Lee with the blank forms (grids) that he used to send his marks to Cassidy – yet BMO claims they were surprised by the fact (defrauded no less) that Lee's marks were what Cassidy baselined his report on.
  
• Not a single trade that Cassidy executed for BMO through Lee, either by voice trade or Optionable’s electronic trading platform (OPEX) is alleged to have been inaccurate either by neglect or by deliberate fraud. Yet during BMO's press conference they accused Cassidy and Optionable of causing BMO's massive losses. The fallout from that accusation cost Cassidy his job and cost Optionable all of its customers. Additionally it poisoned Optionable's then brand new marriage with NYMEX. (NYMEX bought 18% of Optionable's common stock mere days before BMO's press conference accusations) Optionable's shareholders (including NYMEX) paid dearly for the public scape goating BMO foisted on them. Who is responsible for THAT loss?
  
• Important: Note: I am neither a Natural Gas Options Trader nor a lawyer. I use the name Trader Elvis (traderelvis.com) because it makes me smile. I am a trader only in the most basic sense, someone Jim Cramer would call a home-gamer. So, if I'm not an Options trader or a lawyer, what am I doing writing this blog. Well, for starters, yes, I am an Optionable shareholder. As for how I make my living, I am employed as a Project Manager. That's why BMO’s lack of process definition bothers me - but doesn't always register with other people as being such a glaring problem. I get annoyed when people don’t define what they want/expect and then complain (or in this case Sue) when they don't get what they want/expect. This case is a perfect example of how easy it is to be blamed and how nearly impossible it is to be defended when things go wrong and processes and expectations weren't properly documented.
  
• The comments on this blog are my own opinions, based to the best of my understanding on publically available information. At the time of this post I am an Optionable shareholder.