Optionable Press Release links Bank CEO to Fraud

I am reposting the Press Release that appeared Optionable's web site on 9/30/13 in its entirety, without edits or comments of my own. Optionable removed this press release on 10/2/13 per court order.
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Bank of Montreal CEO Downe Linked to Fraud and Cover Up
September 30, 2013
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New evidence obtained by Optionable links current Bank of Montreal CEO Bill Downe to a cover up in relation to trading losses in natural gas positions incurred by the bank in early 2007.

Emails by Mr. Downe clearly show he was aware that BMO took a large speculative position without proper risk oversight. In an internal email to staff, Downe commented “It happens to be a fact and you couldn’t lose this much money by taking one gigantic bet if you had risk controls in place.” BMO had numerous times disclosed to the public they were running a conservative client driven book. The fact that BMO was engaged in massive speculative trading was deliberately never disclosed to the public by BMO at the time and has still not been disclosed. Years of gains in their natural gas trading book had padded earnings at the Canadian bank and had resulted in increased bonuses for BMO executives.

When the natural gas positions run by head trader David Lee began to experience losses due to excessive speculation, BMO executives moved quickly to cover up the size of their positions. Investment Banking Head Yves Bordeaux implored David Lee “to come up with a plan because how are we going to explain things to people who thought we were just trading around customer business."  Further evidence uncovered by Optionable indicates that Mr. Downe has admitted that BMO executives who were charged with unwinding the positions had told him “the book was bigger than anything they had ever seen”.   Faced with an angry shareholder base, potential regulatory actions, and possible downgrades by rating agencies, BMO led by CEO Downe, settled on a plan to “blame Optionable” and “redirect the spin by suing Optionable.”   Mr. Downe chose to participate in the cover up rather than disclose the fact that BMO was running a book that was not tied to customer business at all but rather was engaged in massive speculation.

"The fact that this fraud reached the highest level of the executive suite at BMO is tragic”, said Dov Rauchwerger, Optionable CEO. “It is important to note that even at this point in time Mr. Downe shockingly continues to perpetuate the falsehood that BMO was running a client driven book in natural gas. The lack of remorse is shameful, especially given that their cover up landed an innocent man in prison.”

About Optionable
Optionable was the developer of a groundbreaking options trading platform for professional options traders. In May 2007, actions by Bank of Montreal (BMO) and the New York Mercantile Exchange (NYMEX) destroyed five hundred million in market value and billions more in lost opportunity costs. Its business destroyed, the company is now actively investigating and pursuing all avenues to hold NYMEX (now CME) and BMO accountable.

The Optionable story minus the megaphone

A few weeks ago Optionable posted a press release on their website, which was the first public statement by the company in 6 years.  I thought I would take this opportunity to attempt to write a news article based on the press release.  My hope is that the end product will more closely resemble something an actual reporter would write, and less like the ramblings of a megaphone wielding community activist.  Here goes.

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New York – Back in 2007, Optionable was a fast track New York brokerage firm.  Optionable commanded a sizable voice brokerage presence and had rolled out a groundbreaking electronic options trading platform that was gaining acceptance in the market.  New York based, Bank of Montreal Commercial Markets (BMO CM) traded heavily through Optionable and had become their largest client.  The New York Mercantile Exchange (NYMEX) invested $27M to secure a minority interest in Optionable after releasing a string of press releases that announced expanded services NYMEX offered in partnership with the firm.
 
And in a New York minute, it was gone.

According to a July 2013 statement released on Optionable’s website, the company claims that their reversal of fortune was no accident.  Optionable asserts that each for their own reasons, their two most important partners profited by taking deliberate and destructive actions against them which has left Optionable permanently unable to generate revenue as a brokerage firm.

Why did they do it?

Optionable claims that the Bank of Montreal had been incurring trading losses while still reporting profits to the Securities and Exchange Commission.   When the losses could no longer be concealed, the Bank hired a crisis management agency that advised the Bank to publicly blame Optionable, as their CEO had an unrelated previous criminal record, which would serve as a smoke screen for the Bank’s failed risk management practices.

Optionable also claims that NYMEX “piled on” to the Bank of Montreal’s bad acts so that they could launch a competing product through the Chicago Mercantile Exchange (CME) and thereby laid the groundwork for their own ten billion purchase by CME the following year.

Optionable states that they have filed significant counterclaims against CME and that they will not cease to fight for their beleaguered shareholders until BMO and CME are held accountable.  October 2013 depositions of Bank of Montreal personnel have been scheduled.

Optionable's first public statement in six years can be found here.
Disclosure: I am an investor in Optionable.  This blog does not offer advice on buying or selling any security.

Optionable's first statement in six years

On July 28, 2013 the statement below appeared on Optionable's website. 
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Optionable Updates Litigation Strategy
July 28, 2013

 Optionable announced today that upon examination of evidence relating to
the collapse of its business and share price, clear evidence of actions by Bank of
Montreal (BMO) and The New York Mercantile Exchange (NYMEX) as being the
cause of such collapse has emerged.

 In May 2007, BMO, in the midst of significant market losses after previously
announced gains, executed clear strategy to do whatever necessary to steer
attention away from its risk management practices. In fact, internal
communications at BMO between BMO and its crisis public relations firm states
clearly "we feel the strategy of assigning blame to Optionable............ has been
effective to date". The communication then suggests "redirecting the spin by
suing Optionable" as a way to focus the media attention on Optionable.
Optionable had been high profile based on its position as a first mover in the
options technology space and based on the New York Mercantile Exchange
(NYMEX) having bought a minority interest in Optionable.

 Incredibly, BMO did in fact sue Optionable and litigation is now pending.
NYMEX then piled on based on the "supposed" bad actions of Optionable and
alleged breach of contract relating to their purchase of minority interest in
Optionable.

 NYMEX, which had taken a minority interest in Optionable, was
contractually required to be engaging in technology cooperation and joint
marketing. Instead, NYMEX launched a competing product to Optionable on the
platform of the Chicago Mercantile Exchange (CME) thereby setting up their own
ten billion dollar purchase by CME. Optionable has filed significant counterclaims
against NYMEX .

“Actions by BMO and NYMEX caused approximately 500 million in actual
market value destruction to Optionable shareholders, said Optionable CEO Dov
Rauchwerger. " In addition, the potential for billions more, based on Optionable's
clear lead as the first options platform able to handle complex options trade was
lost. We will not cease to fight until BMO and NYMEX (now CME ) are held
accountable for our beleaguered shareholders actual losses and lost
opportunities". Optionable will be providing timely updates to shareholders as
further investigations of the actions of BMO and NYMEX in this matter are undertaken and as management determines further steps to take in order to
recoup value for shareholders.

About Optionable
 Optionable was the developer of a groundbreaking options trading
platform for professional options traders. In May 2007, actions by Bank of
Montreal (BMO) and the New York Mercantile Exchange (NYMEX) destroyed five
hundred million in market value and billions more in lost opportunity costs. Its
business destroyed, the company is now actively investigating and pursuing all
avenues to hold NYMEX (now CME) and BMO accountable.