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UNITED STATES DISTRICT
COURT FOR THE SOUTHERN DISTRICT OF NEW YORK
BANK OF MONTREAL
v.
OPTIONABLE, INC., MF
GLOBAL INC., KEVIN P. CASSIDY, EDWARD J. O’CONNOR, MARK A. NORDLICHT., RYAN B.
WOODGATE, SCOTT CONNOR and JOSEPH D. SAAB, Defendants.
DEFENDANT KEVIN P. CASSIDY’S MEMORANDUM OF LAW IN
OPPOSITION TO PLAINTIFF’S MOTION TO DISMISS ITS COMPLAINT WITHOUT PREJUDICE
Case
1:09-cv-07557-GBD-JLC Document 250 Filed 11/27/13
LAWRENCE R. GELBER
ATTORNEY AT LAW
THE VANDERBILT PLAZA
34 PLAZA STREET – SUITE 1107
BROOKLYN, NEW YORK 11238
www.GelberLaw.net
Phone: (718) 638 2383 Fax: (718) 857 9339
GelberLaw@aol.com Cell: (917) 992 3596
TABLE OF CONTENTS
*
Table of Contents
* Table of Authorities
* INTRODUCTION
* BACKGROUND
* SIGNIFICANT
BACKGROUND
EVENTS
TO BMO’S 2007
BLOW-UP
* THE
EVENTS
THAT CAUSED
BMO’S TRADING
LOSSES
* BMO LAUNCHES
ITS BLAME SHIFTING
STRATEGY
* ARGUMENT
* CONCLUSION
TABLE OF AUTHORITIES
Bridgeport Music, Inc. v. Universal-MCA Music Publishing, Inc., 583 F.
3d 948 (6th Cir. 2009) 11 Camilli v. Grimes, 436 F. 3d 120 (2d Cir.
2006) 11
Cone v. West Virginia Pulp & Paper Co., 330 U.S. 212, 217, 67 S.Ct.
752, 91 L.Ed. 849 (1947) 11 D'Alto v. Dahon California, Inc., 100 F.3d
281, 283 (2d Cir.1996) 12
Jones v. SEC, 298 U.S. 1, 19, 56 S.Ct. 654, 80 L.Ed. 1015 (1936) 11
In re Sizzler Restaurants Intern. Inc., 262 BR 811 (Br. C.D. Cal. 2001) 13
LeBlang Motors, Ltd. v. Suburu of Am., Inc., 148 F.3d 680, 685 (7th Cir.
1998) 11
McCants v. Ford Motor Co., 781 F.2d 855, 856 (11th Cir. 1986) 11
Phillips USA, Inc. v. Allflex USA, Inc., 77 F.3d 354, 358 (10th Cir.
1996) 14
Zagano v. Fordham University, 900 F.2d 12, 14 (2d Cir.1990) 11, 12
STATUTES RULES REGULATIONS TREATISES Federal Rules of Civil Procedure
Rule Rule 41(a)(2) 11
INTRODUCTION
Defendant
Kevin P. Cassidy (Cassidy) opposes Plaintiff Bank of Montreal’s (BMO) “without
prejudice” motion to dismiss its claims against him. The claims should be
dismissed, but with prejudice, because: (1) BMO cannot prove
that, notwithstanding his guilty plea (discussed infra), Cassidy
or anyone else other than BMO itself caused BMO any losses, and (2) BMO brought
this lawsuit1 not because it believed Cassidy caused its
losses, but because suing Cassidy was part of a well-engineered, professionally
designed and ultimately malicious effort to shift the blame in order to protect
BMO and its CEO, William Downe (Downe). Because Cassidy did not cause BMO any
loss (and no contrary evidence exists), BMO’s repeated reference to Cassidy’s
plea deal with the Department of Justice (DOJ) is a red herring in BMO’s
argument here.
BMO,
after being advised by Magistrate Judge Cott that it would most likely have to
produce Downe for deposition in January, 2014 (Gelber Dec. Ex. S), and on the
weekend before it was required to produce three witnesses for deposition, chose
to fold its tent and go home. The reasons it propounds for its departure are
patently absurd and to permit BMO to now withdraw without prejudice would
interfere with Cassidy’s right to bring, if evaluation and further research
permit, a claim for malicious prosecution as well as for other frauds just
recently uncovered.
BMO’s
transparently flimsy rationale for dropping its $680 million case is that
Cassidy cannot afford to pay the $8.6 million imposed as restitution if
sustained on the pending appeal.2 Neither the Department of
Justice (DOJ) nor BMO has been able to demonstrate that Cassidy caused any
losses to BMO3. The evidence adduced thus far reveals that
BMO targeted Cassidy and others (Gelber Dec. Ex. M) in order to conceal BMO’s
own deeply ingrained incompetencies (Gelber Dec. Ex. G) to protect itself from
regulators, prosecutors and shareholder wrath, and to defraud its insurance
carrier and ultimately this Court.
BACKGROUND
BMO
blamed its chief natural gas (NG) derivatives trader, David Lee (Lee), for
“large losses caused by Lee’s trading strategies”. (Compl. ¶1). BMO says Lee’s
“exchange of options for options” (EOO) trading strategy (Compl. ¶ 82) “caused
BMO to lose hundreds of millions of dollars.” (Compl. ¶ 87). Though Cassidy had
no input into Lee’s supposed EOO strategy, and no contrary evidence, after 4
years of discovery, exists, BMO sued Cassidy not Lee.
BMO alleged
Lee falsely entered EOO trades into BMO’s books (Compl. ¶ 86), under the
supervision of BMO employee Robert Moore (Moore), who (i) knew about Lee’s EOO
trades, (ii) knew that Lee was falsely depicting them as profitable (iii) told
Lee to stop and (iv) failed to report Lee to Moore’s superiors. (Compl. ¶¶
93-95). Though Cassidy had no access to BMO’s books, BMO sued Cassidy not Moore.
On or around
May 23, 2007, BMO filed a Form 6K with the SEC. reporting a “previously
announced $680 million dollar” year to date “Commodities Trading” loss.
BMO’s
commodities trading loss was the foreseeable culmination of years of defective
valuation procedures, poor risk controls and inadequate supervisory systems.
After BMO disclosed, in its 2001 annual report, a $51 million NG trading loss4 to its
shareholders, it retained a major accounting firm (Price Waterhouse) that
advised BMO it had serious defects in its systems. BMO ignored the advice. So,
in 2003 BMO was sued by AEP Energy Services, Inc. (AEP)5, in
connection with a $94 million dollar valuation discrepancy. BMO’s defective
valuation procedures, which included applying wrong formulae, also regularly
caused valuation issues with counterparties, such as HETCO, with whom BMO had a
$5 million valuation discrepancy.6
By
early 2007, with no effective controls in place, BMO had amassed an “utterly
gigantic” 7 mostly proprietary position of over 7.6
million NG derivatives contracts.8
In
late 2006 or early 2007, as its problems started to rise to the surface, BMO
engaged Deloitte & Touche (Deloitte), to analyze BMO’s systems. In April,
2007, Deloitte rendered a non-public report: “BMO Capital Markets Commodity
Risk Measurement, Valuation & Control Infrastructure Assessment” (the
Deloitte Report) detailing BMO’s 40 (forty) or so deviations (six of which
Deloitte deemed severe) from standard industry practice in the conduct,
operation and valuation of BMO’s high-risk NG derivatives trading efforts 9.
The Deloitte
Report nowhere criticized Optionable, notwithstanding the false stories to that
effect leaked by BMO to the press. It did, however, severely critique BMO,
noting among BMO’s deviations from industry standards: BMO’s failure to (i)
comparatively validate recorded telephone orders with actual trade
confirmations; (ii) use automated procedures, to upload official price data
sources and instead rely on its Front Office to manually update pricing
spreadsheets; (iii) provide sufficient independence to Market Risk to ensure
the integrity of gathered data; (iv) include critical portfolio attributes such
as position by book, commodity and instrument in the management reporting
package; (v) use more than one external source of data10;
(vi) use an adequate valuation equation or formula; (vii) account
for seasonality in its valuations; (viii) meet prevailing industry practices
for risk model testing by using a six non-consecutive day approach when
standard minimum industry practice called for a thirty consecutive business day
approach; among some thirty or so other deficiencies.
SIGNIFICANT BACKGROUND
EVENTS
TO BMO’S 2007
BLOW-UP
In
June / July 2006, the MotherRock LP (MotherRock) hedge fund formed by former
NYMEX executives lost some $230 million dollars trading NG derivatives. Then,
in September 2006, in the wake of MotherRock, Amaranth Advisors LLC (Amaranth),
a BMO client, lost a record $6.5 billion dollars trading NG derivatives.
BMO was thus
on sharp notice of the severe risks of not rectifying its defective systems.
Nevertheless, in January, 2007, Bill Downe declined to change BMO’s “method for
determining market” even though BMO’s Chief Risk Officer, Bob McGlashen,
emailed Downe on January 26, 2007 to report a possible $50 million11 “adjustment”
in “Bob Moore’s book, predominantly Natural Gas.”
In fact,
instead of reducing risk, BMO, with zero input from Cassidy or Optionable,
voluntarily chose to increase risk multifold, jumping into the breach
created by the Mother Rock / Amaranth debacles, acquiring an unprecedented
position in NG options, some 7.6 million open contracts12,
upon information and belief the single largest position in global trading
history, dwarfing the number of contracts that had contributed to the demise of
Amaranth.
THE EVENTS
THAT CAUSED
BMO’S TRADING
LOSSES
BMO
allowed its NG derivatives portfolio to grow so large that, starting in the
fall of 2006, BMO was losing over $1 million every single day (some days
approaching $2 million), month in and month out, due only to the passage of
time; its money was figuratively “evaporating”; literally disappearing. BMO
positioned itself to automatically lose $2-$3 million every 36 hours or
so. The automatic loss of value in an options book is called “theta loss: or
“theta erosion”. Just as water in a pot over a fire evaporates due to heat, the
value of options in a portfolio decreases due to the passage of time. To carry
the analogy forward, instead of turning off the heat, BMO put more water into
the pot. “The time decay was in the range of $1-1.5MM per day over the last
quarter. The business was unable to offset this cost of theta due to lower
client flow and lower volatility. (A quick calculation of approximately
USD1mm/day for the quarter is USD90mm of theta expense and explains a large
portion of our trading losses.)”13
The
“utterly gigantic” (Gelber Dec. Ex. E) volume of BMO’s open contracts, combined
with (i) BMO’s multiple deviations from industry standards as detailed in the
Deloitte Report (Gelber Dec. Ex. G); (ii) million-dollar-a-day theta erosion
(Gelber Dec. Ex. I), and (iii) BMO’s failure to heed Cassidy’s advice
(detailed below), among other factors within BMO’s exclusive control,
predictably resulted in BMO’s second major loss in seven years.
Downe himself
said the 2007 loss would have not occurred had BMO had proper risk controls in
place. Specifically, on or around May 5, 2007, Downe wrote: “The reason the
book is illiquid, as opposed to the market being illiquid, is it has a lot of
thinly traded positions. 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”.14 (Emphasis
added). But BMO did not have such controls. Cassidy not telling BMO that the
accurate month-end sample quotes Optionable was testing in the market
originated with Lee was irrelevant to BMO’s losses.
Moreover, BMO
knew, without needing to be told by Cassidy, that the quotes originated with
Lee. ”Some of Optionable quotes come from BMO….”15 And
even more pointedly: “The current practice of collecting quotes from other
broker’s is not independent as we go through the trader to obtain them.”16 (Emphasis
added).
After BMO
announced its loss, the Canadian press questioned the competence and risk
management capabilities of BMO and particularly Downe.
For example, on May 18, 2007, Canadian Banks &
Insurance wrote:
This is not life-threatening for a bank that earned
$2.7-billion in profit last year, but its credibility is on life support. The
crisis exposes a disconnect between its reputation as the safe, cautious bank
among Canada’s Big Five and internal practices. And it happened in the division
Mr. Downe used to head, capital markets. Given the size of the losses,
some believe they build up over many months. “The absolute size of the
estimated commodity trading losses far exceeds the bank’s average market value
exposure to commodities risk, is disproportionate to its total trading
revenues, and does not reflect BMO’s stated strategy of being a low-risk bank,”
credit rating agency Standard & Poor’s said in a note. [Emphasis provided].
Evidently
fearful of the truth being exposed by the press, BMO hired Dan Klores
Communications LLC (DKC), a public relations firm, to implement a “strategy of
assigning blame to Optionable” using “off the record tactics”17 to
manipulate Canadian newspapers, such as the Financial Post and the Globe and
Mail, to issue false leaks to the press and make false allegations, to
perpetrate a cover-up of BMO’s exclusive responsibility for the claimed 2007
losses and scapegoat Optionable and Cassidy.
For example:
a. BMO falsely leaked that the Deloitte Report was
critical of Optionable, when it was not; it was critical only of BMO;
b. BMO falsely said that the “reliability” of quotes from
Optionable was in question, when the quotes were unquestionably reliable;
c. BMO falsely asserted that a “multiple contributor”
source of monthly quotes – Totem – showed vastly inconsistent quotes from those
provided by Optionable, even though, according to an from the Director of Totem
Commodities Tom Charlesworth to Murray McIntosh at BMO18 there
was no material difference when an “apples to apples” comparison was made;
d. BMO falsely and maliciously leaked that Cassidy
discouraged BMO from checking sources other than Optionable for month-end data
points when the well-documented opposite was true – Cassidy told BMO manager
Murray McIntosh (McIntosh) to use additional sources19 and
not rely exclusively on Optionable. Cassidy’s advice was known and acknowledged
by BMO’s risk officer, Penny Somerville.20
The
“story” concocted by BMO was: (i) BMO sought end of the month market data about
a miniscule portion of its NG book (ii) BMO wanted these end of month data to
be “independent” of data provided by Lee, as supervised by Moore, (iii) BMO
lost its shirt because Cassidy did not tell BMO that the data Optionable
circulated in the market was not independent as it originated with BMO through
Lee, and (iv) Cassidy prevented BMO’s compliance department, risk management
department, accounting department and its various oversight teams from doing
their jobs by discouraging BMO from getting data from sources other than
Optionable.
BMO’s story was
and remains preposterous because:
(i)
BMO had daily access to actual market data
from NYMEX beyond the reach of Optionable and, though obligated by GAAP to use
daily NYYMEX data, did not;
(ii)
BMO risk department personnel always knew
that the month-end data provided by Optionable could not be and was not
independent. In fact, Jeff Wang in BMO’s market risk department emailed Murray
McIntosh on December 7, 2006, observing: “about segregating BMO quotes from the
non-BMO quotes [t]here is no direct way to do it”21; (Emphasis
provided).
(iii)
BMO knew (a) that “some of Optionable quotes
come from BMO” (Gelber Dec. Ex. K) and (b) that the quotes were also “not
independent as we go through the trader to obtain them” (Gelber Dec. Ex.
L); and
(iv)
Cassidy directly and unequivocally told BMO
to use additional sources for month-end data. (Gelber Dec. Exhibit P)
In fact the accurate data provided by Optionable to BMO,
alerted BMO to over $225 million in discrepancies on BMO’s books relative to
BMO’s own faulty valuations22, as follows:.
Month / Lee’s
Overvaluation As Indicated by Optionable’s Quotes
September / $23,571,496
October / $12,197,079
November / $30,468,147
December / $17,561,005
January / $32,378,758
February / $29,102,654
March / $83,835,810
TOTAL / $229,100,000
BMO’s
fictional account began to unravel and the DOJ, despite its vast investigative
power, was unable to identify any evidence that Cassidy ever provided false or
inaccurate data to BMO, or that Cassidy caused BMO to lose any money. Accordingly,
the DOJ repeatedly, over the course of three years, reduced the BMO-fed false
accusations, superseding a six-count indictment with two different four-count
indictments, which eliminated the false accusations about transmitting
inaccurate quotes to BMO23, until it minimized its
charges against Cassidy on the eve of trial and settled with Cassidy in
exchange for a plea to a single count information charging conspiracy with Lee
to commit wire fraud.
Cassidy’s
allocution also reflected the accuracy of the information transmitted:
In the fall of 2006, I arranged for my company Optionable
to develop a service called RealMarks, which was designed to provide market
quotes concerning natural gas option contracts. From September 2006 to April
2007, this service provided market quotes to the risk management department of
Bank of Montreal. While I believed that the RealMarks quotes provided to
BMO were legitimate, most of the quotes that RealMarks provided to Bank
of Montreal's risk management department originated with Bank of Montreal's own
trader David Lee. I agreed with Lee that on month end days he would provide
Optionable with the quotes, Optionable would make an effort to show the quotes
to other traders in the market, and then at the end of the day, Optionable
would send quotes to Bank of Montreal's risk management department. Although I
understood that BMO's risk management department wanted quotes that were not
contributed to RealMarks by Lee and felt it was an important factor, I did not
tell the risk management department that many of the quotes had originated with
Lee. I knew this was wrong at the time.
THE COURT: Does the government agree that that is a
sufficient allocution?
MS. BERMAN: Yes, your Honor, we agree.
The tragic irony of this
case is that Cassidy pleaded guilty to failing to tell BMO what it already
knew. But the reality of the matter, based on uncontroverted documentary
evidence, is that BMO was fully responsible for its own losses and that it
engineered an insidious campaign to destroy lives and businesses in order to
protect itself and William Downe.
In sum, none
of BMO’s allegations in the complaint are supported by the evidence, all of
which fairly well points to a maliciously prosecute Cassidy for the nefarious
purpose of hiding its own embarrassing incompetencies.
ARGUMENT
“A Rule 41(a)(2) dismissal may be conditioned on whatever
terms the district court deems necessary to offset the prejudice the defendant
may suffer from a dismissal without prejudice.” Bridgeport Music, Inc. v.
Universal-MCA Music Publishing, Inc., 583 F. 3d 948 (6th Cir. 2009). See
also, LeBlang Motors, Ltd. v. Suburu of Am., Inc., 148 F.3d 680, 685
(7th Cir. 1998); McCants v. Ford Motor Co., 781 F.2d 855, 856 (11th Cir.
1986).
BMO relies on Camilli v. Grimes, 436 F. 3d 120 (2d
Cir. 2006), which observes:
“This Court reviews a decision to dismiss without
prejudice pursuant to Fed. R.Civ.P. 41(a)(2) for abuse of discretion. See
Zagano v. Fordham University, 900 F.2d 12, 14 (2d Cir.1990). Two lines of
authority have developed with respect to the circumstances under which a
dismissal without prejudice might be improper. One line indicates that such a
dismissal would be improper if "the defendant would suffer some plain
legal prejudice other than the mere prospect of a second lawsuit." Cone
v. West Virginia Pulp & Paper Co., 330 U.S. 212, 217, 67 S.Ct. 752, 91
L.Ed. 849 (1947); see Jones v. SEC, 298 U.S. 1, 19, 56 S.Ct. 654, 80
L.Ed. 1015 (1936). Another line indicates that the test for dismissal without
prejudice involves consideration of various factors, known as the Zagano
factors, including (1) the plaintiff's diligence in bringing the motion, (2)
any 12 undue vexatiousness on the plaintiff's part, (3) the extent to which the
suit has progressed, including the defendant's efforts and expense in
preparation for trial, (4) the duplicative expense of relitigation, and (5) the
adequacy of the plaintiff's explanation for the need to dismiss. See D'Alto
v. Dahon California, Inc., 100 F.3d 281, 283 (2d Cir.1996); Zagano,
900 F.2d at 14.”
BMO here
argues the five so-called Zagano factors, set forth above.
First,
BMO argues it brought this motion “promptly” after settling with the other
defendants. BMO actually filed this motion before it settled with the other
defendants, but did so after four years of litigation, which itself was not
commenced until two years after others filed various suits and claims arising
out of BMO’s supposed harm. In fact, by the time BMO sued, the statute of
limitations had run on any possible federal securities fraud claims.
Second, BMO
argues it had no ill motive in bringing the lawsuit. This argument is premised
on a falsehood, as the documents annexed to the accompanying Gelber Dec.
readily demonstrate. Notwithstanding Cassidy’s guilty plea, BMO never suffered
losses from any act or omission of Cassidy, and nobody, certainly not the DOJ
(Gelber Dec. Ex. B) has been able to show that the conduct to which Cassidy
allocuted caused BMO any loss.
BMO’s losses
were caused by (i) ignoring Cassidy’s advice to get month-end data from more
than one source, (ii) by deviating in approximately 40 ways from industry
standards, (Gelber Dec, Ex. G) (iii) by refusing to consider changes to its methodologies,
even when facing a $50 million loss, (Gelber Dec. Ex. H) and (iv) by putting on
such a large position that it was losing over $1 million dollars every day
simply by time deterioration (Gelber Dec. Ex. I). There is no evidence to the
contrary.
Third.
Cassidy
noticed the deposition of Downe, and BMO opposed it, resulting in a conference
before Magistrate Judge Cott in which he indicated that BMO would likely have
to produce Downe in January.24 On the weekend before BMO
was to produce three other witnesses for depositions by the defendants, BMO,
not wanting the truth to emerge, “promptly” pushed for settlements, not yet
executed, and made this motion.
Cassidy was
preparing to move to amend his second affirmative defense – in pari delicto –
in order to outline for the court BMO’s misconduct.25 Cassidy
to the best of his hobbled ability has acted as aggressively as he could in
connection with this litigation and would clearly be prejudiced by a “without
prejudice” dismissal.
Fourth, there
would not likely be duplicative costs, but it would be more expensive to
gear up for a second litigation.
Fifth,
while Cassidy has no economic ability to bear any judgment against him,
assuming he would lose, it was equally true at the beginning of this case that
he was not able to economically bear a judgment of $680 million. Right now, BMO
is entitled to nothing. The restitution imposed against Cassidy is under
appeal. (Gelber Dec. Ex. B).
BMO’s actions
were malicious and it brought this case for multiple improper purposes, as
detailed above. Cassidy has the right to sue for malicious prosecution. That
right is impaired by a “without prejudice” dismissal. Under such circumstances,
the Court would be within its discretion to direct dismissal with prejudice. In
re Sizzler Restaurants Intern. Inc., 262 BR 811 (Br. C.D. Cal. 2001).
Because BMO’s
claim here is a claim for money damages, and because BMO cannot prove that
Cassidy caused it any losses, BMO also could lose on the merits here at trial.
And clearly, an attempt to avoid an adverse decision on the merits may also
constitute legal prejudice. See, Phillips USA, Inc. v. Allflex USA, Inc.,
77 F.3d 354, 358 (10th Cir. 1996).
Accordingly, the claims should be dismissed with
prejudice as to Cassidy.
CONCLUSION
BMO’s claims should be dismissed with prejudice and the
court should award such other and further relief as it deems just and equitable.
Dated: Brooklyn, New York November 27, 2013
Respectfully submitted,
Lawrence R. Gelber
Attorney at Law
The Vanderbilt Plaza
34 Plaza Street, Suite 1107
Brooklyn, NY 11238
T: 718-638-2383
F: 718-857-9339
GelberLaw@aol.com
Attorney for Defendant Kevin P. Cassidy
1: A copy of the Complaint is annexed as
Exhibit A to the Declaration of Lawrence R. Gelber (Gelber Dec.) sworn
to November 27, 2013.
2: A
copy of Cassidy’s “Brief for Defendant-Appellant” dated November 7, 2013, is
annexed as Exhibit B to the Gelber Dec.
3: Indeed,
the restitution is not premised on any losses supposedly caused to BMO but
rather on the amount of money BMO paid in brokerage commissions and bonuses to
its own employee.
4: BMO
blamed the loss on its then trader Joseph Adevai. The SEC, in 2008 and again in
2012, alleged that BMO had fired Adevai for mismarking his book (i.e.,
assigning incorrect values to BMO’s NG portfolio); first at ¶16 of its
complaint in SEC v. Lee et al. 08 Civ. 9961 (GBD)(S.D.N.Y.) and again at ¶22 of
its amended complaint filed August 14, 2012.
5: AEP Energy
Services, et ano. v. Bank of Montreal 03 Civ. 00335 (JLG-NMK) (S.D. Ohio). A
copy of the first amended complaint in the AEP case is annexed as Exhibit C to
the Gelber Dec.
6: A
copy of the email chain reflecting the HETCO valuation dispute is annexed as
Exhibit D to the Gelber Dec.
7: A
copy of the transcript of a telephone conversation between BMO employees Murray
McIntosh and Pat Cronin as dated April 11, 2007 is annexed as Exhibit E to
the Gelber Dec.
8: A
copy of the first page of the draft memo from Penny Somerville to Murray
McIntosh dated January 2007 reflecting 7,613,906 total NG contracts is annexed
as Exhibit F to the Gelber Dec.
9: A copy of the Deloitte Report is
annexed as Exhibit G to the Gelber Dec.
10: This
despite Cassidy’s advice to BMO to use multiple sources, as discussed, infra.
11: Email
dated January 29, 2007 annexed as Exhibit H to Gelber Dec. .
12: In
a New York Times report in early 2011, Warren Buffett defended Berkshire
Hathaway’s use of derivatives, when the company had about 250 derivative
contracts. “I want to know every contract…but I can’t do it with 23,000 that a
bunch of traders are putting on.” He noted that when Berkshire bought General
Re in 1998, General Re had 23,000 derivative contracts. “I could have hired 15
of the smartest people, you know, math majors, Ph.D.’s. I could have given them
carte blanche to devise any reporting system that would enable me to get my
mind around what exposure that I had, and it wouldn’t have worked,” he said to
the government panel. “Can you imagine 23,000 contracts with 900 institutions
all over the world with probably 200 of them names I can’t pronounce?”
Berkshire decided to unwind the derivative deals, incurring some $400 million
in losses. Warren Buffet could not handle 23 thousand derivatives contracts,
but Downe and BMO believed BMO could handle 7.6 million of them.
13: A copy of the Draft Commodities Brief,
written by Penny Somerville on or around April 21, 2007, is annexed as Exhibit I
to the Gelber Dec.
14: Email
dated May 5, 2007 from William Downe to Andy Plews is annexed as Exhibit J to
the Gelber Dec.
15: Handwritten notes of Penny Somerville
dated February 2, 2007, are annexed as Exhibit K to the Gelber Dec.
16: A
copy of the email from Murray McIntosh to Eric Tripp April 5, 2007 is annexed
as Exhibit L to the Gelber Dec.
17: The
Memorandum dated May 18, 2007 from DKC is annexed as Exhibit M to the
Gelber Dec.
18: A copy of the Totem email to BMO dated
February 9, 2007 is annexed as Exhibit N to the Gelber Dec.
19: See page
11 of Murray McIntosh’s “302”, annexed as Exhibit O to the Gelber Dec.
20: Email
from Somerville to herself dated January 31, 2007, annexed as Exhibit P to
the Gelber Dec.
21: A copy of this email is annexed as
Exhibit Q to the Gelber Dec.
22: As
fully discussed in the Appellate Brief, Gelber Dec. Ex. B.
23: Even
the CFTC acknowledged that “We are not alleging nor do we believe we have to
allege that what Lee was providing them was inaccurate.” Portion of transcript
of oral argument held October 22, 2009, is annexed as Exhibit R to the
Gelber Dec.
24: Transcript of proceedings before
Magistrate Cott on October 30, 2013 annexed as Exhibit S to the Gelber
Dec.
25: The draft
of the proposed amendment to Cassidy’s second affirmative defense – in pari delicto - is annexed as
Exhibit T to the Gelber Dec.
