“What
happened?” and “What was supposed to have happened?” Those are questions both Judge Griesa (in the
criminal case) and Judge Daniels (in the Civil cases) have expressed and I share their
curiosity. Now you might think that I’m quibbling, but
the Bank of Montreal (The Bank) told investors back in 2007 that they were
conducting a “full external review” into “What Happened” and my impression
after reading the transcripts of Ed O’Connor’s deposition is that The Bank
didn’t get around to actually asking “What Happened” until October 2012. (Time elapsed from 5/8/07 to 10/17/12 is
1,989 days…. Hope you weren’t holding your breath waiting for The Bank to
complete its review into “What Happened”)
I wasn’t
born a nit-picking ‘process guy’, but if you've read this blog for a while, you might have noticed that I have become one. Banks, by the way, are Process Driven Institutions. Most of the case studies I've read in Process related text books were all about banking. I'm pretty sure that the average Process person at a bank could plot
Process circles around a mostly intuitive, late bloomer Process
guy like me. OK, so why am I telling you
this?
Here’s
why. The Bank has never produced any type
of documents showing “What was Supposed to Happen” They cry: “Our employee defrauded us – and your
guy helped him”. Well, excuse me Mr. Large
Canadian Bank , but Boo Fucking Hoo!!! Show me the Process Flow of “What was
Supposed to Happen” and THEN we can sit down and honestly
assess if “What Happened” violated your process or not. I mean – I hope my point is getting across
here – because for The Bank to imply that there isn’t a painstakingly detailed
process flow diagram for the management of billions of dollars in “the riskiest
investment in town” (the same stuff that Amaranth Advisors and Mother Rock both
blew up on) simply HAS TO BE a lie. And
if for some reason it isn’t a lie – then Holy Mother of God - - why hasn’t this
cowboy outfit been shut down already?
While The
Bank’s lawyer Anne Beaumont and I are on different sides of this dispute, I do
respect her interrogation of Optionable’s Ed O’Connor and think she did a good
job of drawing out of him “What Happened”. My observation from reading the transcript
however is that much of what Mr. O’Connor told Ms. Beaumont about “What
Happened” came as news to her. Despite 5-plus years of running a “full external review” it seems that no one from The
Bank ever checked in with anyone at Optionable about “What Happened” before
handing the task over to Ms. Beaumont.
To illustrate my point, while I can say that Ms. Beaumont came to the
deposition armed with plenty of documents intending to show how Mr. O’Connor was liable for the actions taken by his company Optionable, she didn’t have a single one that showed how O’Connor’s
version of “What Happened” violated ANYTHING in The Bank’s process for “What
was Supposed to Have Happened”. As an
Optionable shareholder, I think that is a solid victory for us.
• O’Connor identified not 1 but 4 different reporting processes that Optionable followed between 2003 and 2007.
• All of Optionable’s processes were based on instructions received from The Bank. (specifically from The Bank’s trader David Lee) At no time did anyone from The Bank ever contact Optionable with instructions that contradicted Lee’s instructions or indicated in any way to Optionable that Lee’s instructions were anything other than The Bank’s authorized instructions.
• All of the Bid/Ask quotes that Optionable received originated from The Bank’s trader David Lee. Allow me to repeat that - All of them. No one from The Bank ever sent Optionable Bid/Ask quotes to review that were ‘independent’ of Lee. (Having the quotes be ‘independent” of Lee was supposedly an important point for The Bank – so this detail is confusing to me)
• The Bank never paid Optionable for the reports, even though preparing them took a considerable amount of time away from Optionable’s revenue generating activities. (as the reader of this blog, you may not care about this point, but as an investor in Optionable, I’m like….. you’re telling me that The Bank destroyed my investment over these stupid reports and my company never even got paid for the time spent preparing them!?! I guess that’s not a legally binding argument, but it is adding insult to injury.
• When the Back Offices of other clients didn’t agree with numbers O’Connor sent to them, those Back Offices called up O’Connor to complain. According to O’Connor, no one from The Bank’s Back Office ever made such a call. This tells me that the numbers in the reports were somewhat subjective, and that over time reasonable people would at least occasionally disagree about them. For reasons I do not understand, The Bank’s Back Office never objected to any of the numbers. Why?
• David Lee’s portfolio at The Bank was large and complex. It included financial instruments that David Lee did not trade through Optionable. In preparing its reports, Optionable did not comment on Lee’s Bid/Ask quotes on financial instruments that the firm did not trade. Process-wise this detail opens a potential communications gap. If The Bank’s Back Office thought Optionable reviewed Lee’s entire set of quotes, but the process was only to review quotes Optionable traded (and leave the others unchanged) then that goes a long way towards explaining the disconnect between what The Bank “Thought was Happening” and Optionable’s version of “What Happened” . (See my other blog post “6 years later – what if it all was a simple misunderstanding?” here.)
Closing thoughts: As an Optionable shareholder it is my opinion that The Bank knew that they were bluffing when they launched their 2007 “Blame Optionable” campaign and to this day The Bank is unable to answer “What was Supposed to Have Happened”
Resources:
O'Connor'sDeposition File #1
O'Connor'sDeposition File #2
Blog post I wrote about Kevin Cassidy's deposition
Disclosure: I am an Optionable shareholder. This blog does not offer advice regarding buying or selling any security.
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