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| After sentencing, David Lee, his wife and a member of their legal team walk away. |
03/30/15 - New York
David Lee walked away today from a mandatory prison sentence.
In his statement to Judge Loretta A. Preska, Lee expressed remorse for the trust he betrayed that The Bank of Montreal and his coworkers had extended him in good faith. Lee's expression of remorse however excluded the people he worked with outside the Bank whose trust he also betrayed.
Lee was granted leniency primarily because of the cooperation he gave authorities and government agencies in understanding the complexities of his crime.
A second factor in the leniency shown to Lee was the willingness he expressed to testify against Kevin Cassidy, of the brokerage firm Optionable. Even though Federal Prosecutor AUSA Michael Levy described Lee as being "more culpable" than Cassidy, the Prosecutor suggested to the Court that Lee's willingness to testify was a motivating factor in Cassidy's decision to accept a plea deal. I disagree with the Prosecutor's valuation of Lee's potential testimony and I believe I have good reason. I've read Kevin Cassidy's sworn deposition testimony. [Inside joke: I believe the value of Lee's testimony has been "mismarked" - ha ha]
During sentencing Judge Preska asked if there were any victims of Mr. Lee's actions who wished to make a statement. I remained silent - and that silence is going to haunt me.
Here is the statement I wish I made:
Mr. Lee, I have followed this case for 8 years. I have been hurt financially by the actions you have admitted to. Your Defense lawyer, as well as the Prosecutor and even a representative of the CFTC have all praised your willingness to be completely honest about the details of your crime while this Court was determining your sentence.
Mr. Lee, I would like to read you a passage from Kevin Cassidy's sworn deposition testimony and then ask you to answer one question with the same spirit of honesty for which you are being credited today.
(from page 599-600 of Cassidy's deposition)
MS. ROBIN: Prior to September 2006, did anyone from BMO other than David Lee forward to you or anyone else at Optionable natural gas pricing information at month-end for this review?
MR. WALFISH: Objection.
MR. CASSIDY: No, not that I can recall.
MS. ROBIN: Did Mr. Lee ever tell you that he was mismarking his book of natural gas options?
MR. CASSIDY: No.
MS. ROBIN: Did Mr. Lee ever specifically tell you that he was defrauding BMO in any way?
MR. CASSIDY: No.
MS. ROBIN: To your knowledge, did Mr. Lee ever tell Mr. O'Connor that Mr. Lee was mismarking his book of natural gas options?
MR. CASSIDY: No.
MS. ROBIN: To your knowledge, did Mr. Lee ever tell Mr. O'Connor that Mr. Lee was defrauding BMO in any way?
MR. CASSIDY: No.
Mr. Lee, you have lead your former employer, The Bank of Montreal, as well as the media, prosecutors and this court all to believe that Mr. Cassidy participated in a conspiracy with you. Based on Mr. Cassidy's sworn deposition testimony, I believe he did not. Mr. Cassidy served a prison sentence based on your accusations, while here today you escape that fate yourself. Based on your accusations, Mr. Cassidy's company, Optionable's lost the trust of corporate traders, (your peers) which was their life blood. Your accusations permanently shuttered Optionable's doors, meanwhile, your ex-employer continues to lackadaisically gamble in the thin high risk markets you dominated for them.
Here then is my one question for you. Please tell me if Mr. Cassidy's testimony is true. If you are willing to say, before God and this Court that Mr. Cassidy's sworn testimony is false - then I offer you my apology for interrupting your sentencing hearing today. God speed to you, Sir. If however, you know in your heart that Mr. Cassidy's sworn testimony is true, then I implore you to live up to the condition that Judge Preska included in her sentencing on you: "Mr. Lee, hence forth: Do the right thing." To me, doing the right thing would be admitting that your crime was a "conspiracy of one" in which the motive for your actions was hidden from all involved. Admit that you alone betrayed the trust your employer, coworkers and outside vendors granted you in good faith.
Final Note: (added 4/3/15) I have offered David Lee, through his lawyer, the opportunity to respond to this blog post. If he chooses to accept this invitation, I will print his reply unedited, in it's entirety.
Disclaimer: I am an investor in Optionable. This blog does not offer advice on buying or selling any security.
2 comments:
Hi, I work in natural gas options trading for a North American investment bank. I just happening to be learning this BMO story for the first time. I wanted to share a reaction with you. I have only read a few of your recent posts, but my impression is that you don't really have an understanding of markets, and your viewpoint is fundamentally slanted by your belief that you were robbed of the money you invested in the brokerage company. I am sorry that you lost on your investment. And I wish you could recoup some of it by suing the executives of the brokerage. I also agree with you that Lee was the center of the fraud and the most culpable. I also feel based on the bit that I've read now that Moore was a junior partner to Lee, who should have faced similar consequence. Where I disagree with you is in your belief that Optionable was an innocent bystander. This view is insane. It does not have the slightest plausibility. There is no conceivable way that Optionable had no idea that Lee's marks were bad, and that Lee wanted Optionable to report those marks to his employer for nefarious purposes. Optionable was not blind subordinate to Lee. Lee was the biggest part of their business. But he was not even a majority of their business. Optionable traded with other banks and other counterparties. There is no doubt that they knew that Lee's marks were wrong. Every broker I talk to every day (over a dozen) maintains full marks of the vol surface. Even if one were not so diligent with observing and recording observations--the request to "take these marks and send them to my bosses as if they were your own" does not have any conceivable interpretation but an obvious scheme of fraud. There is not the slightest, remotest doubt that Optionable was in on the conspiracy. No doubt as a junior partner, a subordinate (to the sophisticated bank guys who provided the faucet of commission dollars)--but also well aware. Even if it was unspoken.
Even your choice of questions and answers you want to present to Lee points to a staunch refusal to confront obvious reality. Read what the questions ask. Over and over "did so and so ever SAY this?", "did so and so ever SAY that?". So what if they never said it. They didn't have to say it. It is perfectly 100% obvious to anyone who has the slightest understanding of markets or even just business. Where are the questions that as Optionable if they knew or should have known. There is no doubt that they did. Not even unreasonable doubt. Just zero doubt. Sorry they were in it. And I'm sorry you lost money on that. I hope for you to have any chance to recover from anyone connected with Optionable.
Hello – and thank you so much for taking the time to reply to my blog post on BMO’s trader, David Lee. Your opinions are well stated and in line with a majority of people who’re familiar with this case. (even if they’re wrong – haha)
Since you’re a natural gas trader yourself, I’m not going to pretend that I know as much about trading as you. It’s my suspicion however, that you and I both know more about trading than the Judges who ruled on these various cases. And, to be fair, I’m not even saying that a criticism. I willingly concede that they know more about the law than I do, and most likely, than you as well. Here’s the skillset that I bring to the party. I’m a process guy, although I’m not a natural-born one. I have to work at it harder than many of my peers, and I’ve been known to require more data than most before I can chart out a course of action.
And here’s why I say that even if you know more about trading than me, and the Judges know more about the law than me, I am quite confident that I’ve got this figured right, and you folks don’t. When this first happened back in 2007, when I knew even less about trading and the law than I do now, before I had seen the Deloitte audit of the Bank’s flawed Risk Management process (see the blog for the links), or the DKC memo detailing the Bank’s scheme to shift the blame to Optionable, (see the blog for links), I knew that the process the Bank was claiming to have had was not a viable process. At the time, I couldn’t tell you how their process worked, but I knew it didn’t work the way they were claiming it did.
I’d be happy to debunk all of your concerns, accusations and suspicions, from multiple angles, but here’s the thing. You’re right that I have skin in this game. I have disclosed my ownership of Optionable stock in every blog I posted and every letter I’ve written to lawmakers, senators and members of Congress. You got me there. What you don’t hear so often is that the Bank has skin in this game too, and I’m not talking about them suing for damages. They settled for 3% of a penny on the dollar rather than risk having their CEO deposed in this case, (I’ve got a few blog posts on that 1 topic alone), so no, the Bank was afraid of being held accountable for torpedoing a company valued at 500 million with the potential to earn billions. (I’ve taken Optionable’s valuation figures from their 2013 press release) So yes, I have a stake in this, but the Bank does too. I wrote a blog that costs me $25 dollars a year to host and they hired a mega-million dollar defense team – so you decide who is letting their monetary interests do the talking.
Anyway, I hope you don’t take the tone of this reply as an attack on your personally. You were civil in your comment to me and I appreciate it. If you still suspect that Kevin Cassidy “must have known” information that was far beyond his reach, please read his deposition testimony. (and that of Optionable’s Ed O’Connor – Ed was more of their process guy)
The Bank knew the profitability of Lee’s trades. Cassidy did not. The Bank knew the size of Lee’s book. Cassidy did not. The Bank knew where Lee had marked his book. Cassidy did not. What the Bank may not have known was how flawed their Risk Management was, and according to the Deloitte report they commissioned, Cassidy, along with others, helped them understand it.
You’re a natural gas trader, so you tell me. Would you have allowed the folks in the Back Office to provide the bid and ask prices that were going to be used to test your book? Real Marks wasn’t hypothetical – it tested quotes with live orders that were responded to by other traders in the market. Once those orders went live neither Lee, Cassidy, or anybody else had influence over the market’s reaction to them. The reports Optionable provided the bank were legitimate and accurate.
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