Investing with Trader Elvis

NYMEX RUNS OUT ON OPTIONABLE Reneges all vows. Remarries in less than a year.

2012-02-24T07:44:00.070-08:00

Did you stand by me

No, not at all

Did you stand by me

No way

Train in Vain

(Strummer/Jones)

After 5 months of dating, NYMEX and Optionable got married back in 2007. A month later the Bank of Montreal, Optionable’s largest customer, terminated all business with Optionable. BMO’s claim was that the Bank had made decisions based on Optionable's reports and these decisions had caused the Bank to incur hundred of millions of dollars in trading losses.

Can you imagine the scene that took place back at the Honeymoon Suite? Questions such as: “Why did I marry you? You Bastard!” and “How could you do this to me? How am I going to insulate myself from looking guilty by association?”, demanded answers.

The solution NYMEX came up with was simple and effective. RUN.

On May 9, 2007, one day after BMO’s announcement, NYMEX announced they were dating CME. The resulting marriage between CME and NYMEX happened in just under a year. (March 18, 2008)

The question this Optionable shareholder wants answered is: Why didn't NYMEX stand by Optionable long enough to see if BMO's accusations had any merit? NYMEX's public abandonment of Optionable sure helped seal the notion in people's minds that Optionable must have done something wrong. I mean, I know I'm using marriage as a metaphor here, so the whole, "For Better or Worse" concept is off the table, but still, NYMEX had spent at least 5 months getting to know Optionable and then just cut and ran when trouble came.
Note: NYMEX doesn't deny that it broke its vows (in this case the 'vows' were fully defined legal obligations) to Optionable, however its defense is that it didn't have to because of BMO's accusations.

Here’s a timeline of highlights:

* January 22, 2007 - Optionable Announces NYMEX Holdings to Purchase 19 Percent of Outstanding Shares of the Company - NYMEX Chairman Richard Schaeffer said "OPEX technology is uniquely positioned to help us achieve our goals"

* Mar 9, 2007 - Optionable announces Trading of Swap Contracts on OPEX through NYMEX ClearPort

* Mar 15, 2007 - Optionable buys two NYMEX membership seats for approx $1.2 million

* April 10 2007 - NYMEX completes purchase of 19% stake in Optionable

* Apr 12, 2007 - Optionable announces Trading of NYMEX Light Sweet Crude Oil Options on OPEX

* April 27 2007 - BMO announced anticipated loss between C350 to C450M.

* May 8, 2007 - BMO announced termination of all business with Optionable

* May 9, 2007 - NYMEX announced that it will offer options trading on CME Globex in direct competition with Optionable's OPEX.

* January 28, 2008 - CME in talks to buy Nymex for about $11 billion (source New York Times http://www.nytimes.com/2008/01/28/business/worldbusiness/28iht-cme.4.9550224.html )

* March 18, 2008 - CME Buys Nymex for $9.48 billion (source Associated Press / MSNBC http://www.msnbc.msn.com/id/23670813 )

see related article on TheStreet.com: NYMEX Nails Optionable http://www.thestreet.com/story/10356098/1.html

Side Note: One could make the argument that NYMEX did NOT run out on the marriage since they are still Optionable shareholders. It's a fair point, but I still maintain that NYMEX ran out on Optionable. Why? 1) The speed of the betrayal. They signed a deal with Optionable's competitor ONE DAY after BMO dropped Optionable. 2) Their holding of Optionable shares has been punitive rather than supportive. It was a way for NYMEX and their new beau (CME) to hold Optionable's head underwater even after they drown.

Side Note 2: It has been suggested that perhaps NYMEX had planned to ditch Optionable all along. It is even been suggested that NYMEX fueled the rumors about Optionable. My take on all this is that those rumors are bunk. I believe that NYMEX's original intentions toward Optionable were sincere. I think BMO's press release implicating Optionable caught NYMEX off guard, they doubted themselves, they doubted their new partner, and they ran as fast as they could before BMO could try to pin this on them as well.

Image source: istockphoto.com - fee for usage on this blog post has been paid.

Disclosure: I am an Optionable shareholder.

Thoughts about the 9/7/11 Conference

2012-01-25T09:27:00.001-08:00

The full transcript of the conference held on 9/7/11 was made publically available on Pacer recently. I have downloaded that document and posted it in the BMO folder of the Yahoo OPBL group. Here are my thoughts about it.

1) BMO wanted to provide less information about their trading records than the Defense wanted. Judge Cott ruled that BMO needed to provide all the information for Discovery purposes. The Judge cautioned that just because he was allowing Defense to see the information for discovery, BMO could still attempt to exclude some of this information at trial. (At a 12/20/11 conference, Anne Beaumont (for BMO) said that document production should be done by the end of February 2012.)

2) During the 9/7/11 conference it was MF Global’s lawyer who did most of the talking for the Defense. It is an understatement to say that MF Global is no longer in a position to do much heavy lifting in a prolonged legal action against BMO.

3) At the tail end of the conference Judge Cott polled the various teams to see if anyone was thinking settlement at this point – or if they were intending to beat each other up for the next year or two. MF Global’s lawyer stated that they would be in a better position to answer that AFTER seeing BMO's discovery material (now expected by the end of February 2012)

4) My personal thought about next steps:

a) We need BMO to deliver the discovery material (by the end of February)

i) Who is going to review BMO's records once they provide them? It's not looking like MF Global is going to be up for the job. (so how long will this review take???)

b) We need to get Cassidy’s and Lee’s depositions on the record.

i) Cassidy is scheduled to be sentenced on 1/31/12. His deposition should happen 30 to 60 days after he is sentenced.

ii) Currently we do not know when Lee will be sentenced, or when he will be available for a deposition.

So…… I think we’re looking at some time in March as the earliest point at which we might have some insight into a resolution. However it could easily take experts a few months to sift through BMO's records before they are willing to testify whether or not that data supports or negates BMO's claim that they solely relied on data from Optionable and MF Global.

Comments welcome.

Sentencing Delay Stalls Cassidy Deposition

2011-12-20T12:43:00.000-08:00

(photo: Justice takes a breather. Statue outside the Federal Courthouse in NYC.)

December 20 Civil case conference with Judge Daniels

Note: audio recordings are not permitted in the court house, so I am relying on my own handwritten notes. I am not a lawyer and may have misunderstood some statements made during the conference. Corrections to these notes by any persons who attended this conference are welcome. Send comments to traderelvis@gmail.com

Cassidy Status:
Kevin Cassidy was scheduled to be sentenced on December 15th. Cassidy's lawyer Lawrence Gelber told the court that sentencing will now be on January 31st. Gelber said that the new date was set by the government and was not at the request of Cassidy.

The expectation is that there will be a 30 to 60 day window between when Cassidy is sentenced and when he goes to jail. During this time Cassidy will be deposed (asked questions under oath) and allowed to speak, for the first time, about the business rules that existed between Optionable and the Bank of Montreal defining how pricing information was to be shared between Optionable and BMO's back office. Judge Daniels expressed his personal doubt that Cassidy would have anything game-changing to say but supported the process by which Cassidy would be sentenced first and deposed later.

[Personal note: I have always doubted BMO's version of events as presented to BMO's Shareholders and Industry Analysts at their 2007 press conference and have been waiting for four years to hear Cassidy's version of events. Unlike Judge Daniels I'm thinking that Cassidy's deposition will reveal a credible alternate interpretation of the admitted actions taken by Lee, Cassidy and BMO's back office that will poke holes in BMO's publicized interpretation that scapegoated Cassidy to mask their own massive losses on excessive risky investments.]

First Up: CFTC
Eugene Smith of the CFTC reported that the CFTC recently finalized a Consent Order with Optionable and O’Connor and that the CFTC expects to reach a similar outcome with Cassidy. Lawrence Gelber said that he needs to wait until after Cassidy is sentenced, before having further discussions with either the CFTC or the SEC. No one from the SEC attended the conference. Marni Rae Robin stated that O’Connor has not settled with the SEC.

Next Up: CMEG / NYMEX
Daniel Pollack said that CMEG filed a motion for Summary Judgment and anticipates an answer from Nordlicht and Cassidy by January 18th. Pollack's position is that when Nordlicht, Cassidy and O'Connor sold NYMEX a 19% stake in Optionable, a warantee was broken because Optionable did not disclose certain alleged criminal acts in their SEC filings, even though the acts had not yet been alleged when the documents were filed. Several Defense lawyers jumped up simultaneously, outraged, to respond while Pollack was talking.

Judge Daniels told both Gottlieb/Nordlicht and Gelber/Cassidy to submit documents to him as to why CMEG’s request for a Summary Judgment is premature – otherwise he expects them to file an answer by January 18th. The problem here is that CMEG wants their motion answered BEFORE Cassidy is deposed.

And Then: BMO
Anne Beaumont's update covered 1) Pleadings 2) Discovery and 3) Document Production. Beaumont said that document production should be done by the end of February. She suggested that Cassidy’s deposition should happen after document production is completed. [personal note: document production seems to be putting a strain on BMO and it was not clear to me why this is the case, or what its relevance is going forward. I feel like I did not fully grasp parts of Beaumont's update]

Norton (for Optionable) asserted that he wants BMO trader David Lee deposed during this time as well. Beaumont clarified that she is not representing Lee and was not sure when Lee will be sentenced. Judge Daniels said that he would expect Lee’s deposition to happen within 30 to 60 days of Lee’s sentencing.

Regarding Joseph Saab of MF Global
Owen Pell wants Saab’s portion of the case stayed (halted) while MF Global’s bankruptcy is figured out. Pell is waiting to see if MF Global’s insurance will pay Saab’s legal fees, because if it doesn’t Saab may need to find another lawyer. Judge Daniels said that he will not halt this case himself, but he would honor such a request from the Judge handling the MF bankruptcy if such a request were made.

Next conference March 1, 2012

Plaintiffs Present: CFTC, Bank of Montreal, CMEG / NYMEX
Plaintiffs Absent: SEC
Defendants Represented: Optionable, Ed O’Connor, Mark Nordlicht, Kevin Cassidy and Joseph Saab

Plaintiffs:
CFTC: Eugene Smith
BMO: Anne Beaumont
CMEG: Daniel Pollack

Defense:
Nordlicht: Jason Gottlieb
Cassidy: Lawrence Gelber
O’Connor: Marni Rae Robin
Optionable: Michael Norton
Saab: Owen Pell

A Summary of the Consent Order with the CFTC

2011-11-10T07:53:00.000-08:00

I've written a summary of what strikes me as the key portions of the Consent Order with the CFTC that Judge Daniels accepted on 11/7/11. You'll note that my summary of Section 2 is a single vague sentence. Section 2 is the portion where the CFTC explains what it claims Optionable and O'Connor did wrong. I am an Optionable shareholder, and not a lawyer, and I do not feel comfortable attempting to summarize that portion of the Consent Order. You can read the original source document in Optionable's 11/09/11 8K filing with the SEC. (http://www.sec.gov)

With that limitation noted: here is my summary:

==============================================================

Consent order Summary:

Full Title: Consent Order of Permanent Injunction, Civil Monetary Penalty and Ancillary Equitable Relief Against Defendants Optionable Inc and Edward O’Connor.

CFTC Complaint filed on 11/18/2008 Case Number 1:08-cv-09962-GBD-JLC

Consent Order filed on: 11/07/11

Complete Defendant List: Kevin Cassidy, Edward O’Connor, Optionable Inc, David Lee and Robert Moore

Parties to this Consent Order: Optionable, Inc and Edward O’Connor

Part 1: Consents and Agreements

Parties neither admit nor deny the allegations of the Complaint. The Defendants do not consent to having the allegations of the Complaint used against them in any other proceeding. The Defendants agree not to make statements that suggest the allegations in the Complaint are not true – with the exception – Defendants are allowed to make statements in other proceedings which contradict the CFTC’s allegations, as long as the CFTC is not a party to those proceedings.

Part 2: Findings and Conclusions

Between 2003 and March 2007 Optionable and O’Connor violated Section 4c(b)

Part 3: Permanent Injunction, Monetary Penalties and Ancillary Equitable Relief

Permanent Injunction:

Optionable and O’Connor are permanently prohibited from a) cheating b) false reporting c) deceiving anyone by any means in the course of trading on NYMEX a product that the CFTC regulates.

Temporary Trading Prohibition:

For 120 days after 11/07/11 O’Connor may not trade Commodities or give orders to others to trade for him.

Monetary Penalty

Optionable and O’Connor must “Jointly and Severally” pay the CFTC $200,000. ("Jointly and Severally" means it’s up to Optionable and O’Connor to figure out who pays how much, and the CFTC doesn’t care as long as it gets $200,000 in 10 days or less)

Dates:

O’Connor signed on 4/19/11 for himself

O’Sullivan signed on 4/11/11 for Optionable

Ryall signed on 10/24/11 as Council for the CFTC

O’Brien signed on 4/22/11 as Council for Optionable and O’Connor

O’Sullivan signed again on 9/22/11 for Optionable

Norton signed on 9/22/11 as Council for Optionable

Judge Daniels signed on 11/7/11 as the US District Judge of the case.

Time Barred Defense

2011-10-21T19:54:00.000-07:00

The Bank of Montreal is suing Optionable. Optionable has filed counterclaims. Today (10/21/11) The Bank of Montreal filed a motion to dismiss Optionable's counterclaims saying that the accusations in the counterclaims are time barred. In short - BMO is claiming that regardless of whether or not they did the things that Optionable is accusing them of - it doesn't matter - because the clock on Optionable's chance to sue them has run out.

The way I see it, if we agree for the sake or argument that BMO committed an offense in 2007 by blaming Optionable for its losses in a public statement to the press - then their actions today are still an offense. If there is a time clock on Optionable's ability to make a counterclaim against BMO that clock should not start when BMO made its first offense in 2007, the clock should start when BMO has made its last offense..... and even today in 2011, BMO has not stopped committing this offense against Optionable.

My personal conclusion: Optionable's counter claims against BMO are not time barred because BMO is still committing the offense.

Next Steps:

* Friday December 9th: Optionable's reply BMO's Motion to Dismiss is due

* Thursday December 15th: Sentencing in the Cassidy criminal case

* Tuesday December 20th: Judge Daniels called a conference in all Optionable civil cases; BMO and CMEG/NYMEX cases.

Hook.Line.Sinker

2011-10-16T20:34:00.000-07:00

The following story is fiction. Any resemblance to any persons either living or dead is purely coincidental.

---------------------------------------------------------------------------------

So let’s say there is this company in Japan called the Bank of Marine Organisms (BMO for short). They are the 4th largest fish processing company in Japan. They buy fish, they sell fish, they warehouse fish and they mortgage fish inventories.

The Bank of Marine Organisms also trades Fugu. Fugu is a tasty fish that if cooked incorrectly will kill you. The Japanese government strongly regulates Fugu and only allows carefully trained chefs to prepare it. The livers of the Fugu fish are the most lethal part of the fish, but are also reported to be the tastiest. Like any natural product, Fugu has an expiration date past which it can not be sold.

The Bank of Marine Organisms is a publically traded company. They don’t hide the fact that they deal in Fugu, but they downplay it. Instead, they present themselves to their shareholders as a cut and dried fish operation. Even though Fugu represents less than 1% of the fish BMO sells by volume, it generates a much larger percent of their total profits.

Fugu traders get special treatment at BMO, but nothing compared to the elite traders who trade Fugu livers near their expiration date. These traders ‘swim’ in highly profitable, yet highly toxic waters where a highly regulated precious commodity is on the brink of becoming worthless.

David Eel was one such trader and he was good at his job. The market for near expiration Fugu livers is so small, and Eel’s influence in it was so large, that Eel was able to set the market prices. Things went on this way for a number of years, David Eel made a lot of money for BMO and in turn BMO rewarded David Eel with a huge salary and bonuses.

But nothing so risky runs smoothly forever. A large Fugu hedge fund, aMerInch, collapsed and the market still hadn't fully recovered from the stench caused by EnRoe. The Securities and Exchange Commission was sniffing around fish trader's financial reports, and it was just a bad time to be trading Fugu.... let alone near expiration Fugu liver. David Eel's influence weakened and he was no longer able to make his prices stick in the marketplace.

BMO was worried because they were looking at Eel's huge inventory of near expiration Fugu liver – and over a million dollars worth of the stuff was expiring daily.

Without David Eel’s ability to set and enforce prices, BMO had to dump a lot of their near expiration Fugu livers at a loss. They had some explaining to do. They knew that with the amount of blood they were spilling into the waters Government sharks were gonna be circling.

In an attempt to distract the Government and their own shareholders, BMO fired David Eel and repackaged his diminished influence in the market instead as a fraud. BMO's spin was that Eel had been lying to them when he reported the value of his near expiration Fugu livers inventory rather than saying that Eel had previously been able to set market market prices and now he wasn't. After all, this strategy had worked for them several years earlier when they fired Eel's predecessor under similar circumstances.

Luckily it turned out that David Eel traded a lot of his near expiration Fugu livers through a small brokerage firm called Oceanable. Oceanable was also a publically traded company and its CEO had a public, but not commonly known criminal record. This made Oceanable an easy scapegoat. BMO held a press conference and spun their conspiracy theory which blamed reports from Oceanable based on Eel's valuations as a cause of their losses on near expiration Fugu livers.

When the criminal record of Oceanable’s CEO, Kevin Bassidy was reported, the press, shareholders and even Government agencies swallowed BMO’s story: Hook, Line and Sinker. "Oh, I get it now", came the collective sigh of relief, "there was a Criminal involved - that explains everything". Oceanable’s CEO was arrested and eventually, years later, took a plea deal.

The irony is that Oceanable's reports actually brought more transparency to the near expiration Fugu liver trading market than was previously possible. The toxicity levels were accurately reported and expiration dates were accurately tracked. The only ‘crime’ that happened was that Oceanable accurately reported the valuation of David Eel’s near expiration Fugu livers during the period of time that Eel controlled the market.

What Would Mark Nordlicht Do?

2011-08-29T14:00:00.000-07:00

The underlying premise of this blog is that I stink at picking stocks. See those birds flying away in the upper right hand corner of this page? You can think of those birds as your investment dollars flying away if you invest the way I do.

But recently, someone with a better track record than me proclaimed to the world (as well as to the SEC) that he thought Optionable shares were undervalued. That someone is Mark Nordlicht.

Who is Mark Nordlicht?

* One of the founders of Optionable

* Operates a hedge fund known for seizing opportunities others miss.

* Is represented by lawyers who have studied the BMO and NYMEX lawsuits

* In June put $1.5 million on the table in a Tender Offer to buy Optionable outright

* As a result of the Tender Offer Nordlicht is once again an Optionable Insider (owns more than 10% of the company)

* Unlike fellow Optionable founder Kevin Cassidy, Nordlicht does not have to “bite his lip” out of concern for a criminal indictment

* Has the money needed to defend Optionable at trial

Here is a link to a more complete bio of Mark Nordlicht

Here is a link Mark Nordlicht's portfolio performance with Platinum Management

On August 15th Kevin Cassidy took a plea on one count in the criminal case against him. So far, everyone is keeping very quiet about what happens now. What WILL Mark Nordlicht do?

Pssst..... The Ex-Con Did it.

2011-08-15T13:27:00.000-07:00

He did what? Kevin Cassidy pleaded guilty today (8/15) to one count in the criminal case against him. Statute 18 U.S.C. § 371 - which is the general conspiracy statute.

In my mind there are still a lot of open, unanswered questions - but - I think it is also important to admit that the game is different now. I have no insight into what contingency plans have been put in place for this outcome - but it would be my assumption that the lawyers on both sides are figuring out what to do next in the civil cases.

Federal guidelines calls for a 30 to 37 month prison term. An interesting coincidence is that by the time Cassidy appears for sentencing, by my count, it will have been 37 months since he was indicted. (November 13, 2008 to December 15, 2011 = 37 months) (in effect doubling the time Cassidy's life will be impacted by taking this plea - if you add his house arrest time to the maximum sentence. )

Links to some press clips:

Reuters:

http://www.reuters.com/article/2011/08/15/us-bankofmontreal-optionable-plea-idUSTRE77E4JL20110815

Bloomberg:

http://www.bloomberg.com/news/2011-08-15/ex-optionable-chief-kevin-cassidy-pleads-guilty-to-conspiracy-in-new-york.html

Worth Noting: It is true that Cassidy had a previous criminal record, and it is true that he did not disclose it in SEC filings. What some reporters keep missing is that back in 2008 Judge Kaplan ruled that Cassidy's criminal past did not need to be disclosed in SEC filings.

Here are some press clips that avoid dredging up Cassidy's previous criminal record.

The Terra News quoted Chad Bray of the Wall Street Journal as saying that Cassidy admitted in court that he failed to provide independent quotes regarding the value of Bank of Montreal's natural-gas options positions and that he knew this was wrong at the time.

http://www.theterranews.com/content/?p=46090

The Globe and Mail (Canadian)

http://www.theglobeandmail.com/globe-investor/guilty-plea-in-bmo-trading-scandal/article2130042/

Forbes:

http://www.forbes.com/sites/billsinger/2011/08/19/guilty-pleas-in-bank-of-montreal-natural-gas-portfolio-pricing-scam/

A Brief Description of the Case: USA vs. Kevin Cassidy

2011-08-15T06:27:00.000-07:00

To date in this blog I have been offering my opinions about a wide range of topics involving the company called Optionable. My opinions are also influenced by my ownership of common stock of Optionable. Today I am going to share a brief description of the case as seen by Kevin Cassidy's Defense team. This description is what the Defense proposes be told to prospective jurors as a part of the Jury Selection process.

===============================================================

BRIEF DESCRIPTION OF THE CASE

Kevin Cassidy (the “Defendant”) is the former chief executive officer of a company called Optionable Inc. (“Optionable”), which was based in New York. Optionable was a commodities brokerage firm, which means that it brokered – or acted as the “middle man” – between traders who wanted to buy and sell commodities contracts. Commodities are goods like gold, coffee, natural gas and other forms of energy. Optionable focused on energy commodities, and received a commission for each transaction it brokered. Optionable often acted as a broker for a type of energy contract called an “option.” An option in the commodities market is a contract granting its owner the right to buy or sell a commodity at a certain price on a later date.

One of Optionable’s largest clients was the Bank of Montreal (“BMO”). BMO is a Canadian bank that has a division in New York which trades, among other things, natural gas options. BMO paid Optionable to act as “middle man” for these options. Until mid-2007, the head energy trader at BMO’s New York Office – that is, the person in charge of deciding which natural gas options to buy or sell – was a man named David Lee. As part of his job, David Lee was required to provide daily valuations for every investment he was making for BMO, including the options in his natural gas portfolio. At least once a month, a separate department at BMO conducted an independent verification of the valuations Lee provided. For part of this independent verification, BMO claims it relied on pricing data provided to it by Optionable.

The Government has charged the defendant, Mr. Cassidy with three things arising out of Optionable’s relationship with BMO. David Lee is not a defendant in this case. First, the Government has charged Mr. Cassidy with conspiring with David Lee to subvert BMO’s independent verification of Lee’s valuations. Under the Government’s theory, Lee and Mr. Cassidy agreed that Lee would send Mr. Cassidy pricing data for natural gas options, and that Mr. Cassidy’s company, Optionable, would then send this data back to BMO, without telling BMO that the data originated with its employee, David Lee.

Second, as the Chief Executive Officer of Optionable, Mr. Cassidy was responsible for signing each of Optionable’s public filings submitted to the U.S. Securities and Exchange Commission (the “S.E.C.”). The S.E.C. is the government regulatory agency whose job it is to regulate the securities industry, which includes commodities traders and brokers. The Government asserts that Optionable should have revealed in those public filings that Mr. Cassidy was conspiring with David Lee to defraud BMO. So the Government has also charged Mr. Cassidy for having failed to disclose his alleged conspiracy with Mr. Lee in the reports Optionable filed with the S.E.C.

And third, the Government alleges that Mr. Cassidy failed to reveal the alleged conspiracy with David Lee in negotiations with a company called NYMEX, when NYMEX purchased an ownership interest in Optionable.

Have any of you here heard about this case or know anything about it based on this short description? If so, please raise your hand now.

This trial is about to begin because Mr. Cassidy denies that he committed any crimes. Mr. Cassidy has pleaded not guilty to the charges against him and has asked for a trial by jury. He is presumed to be innocent of all these charges until and unless the government proves the charges beyond a reasonable doubt.

Is it fair to compare Cassidy’s reports to an Opinion Poll?

2011-08-05T10:17:00.000-07:00

The reports that David Lee (BMO) asked Kevin Cassidy (Optionable) to run were more similar to opinion polls than they were to traditional stock market reports. In a stock market report we can say with absolute certainty what the share price of any publically traded company was on any given day. We can know the exact opening price, the closing price as well as the daily high and daily low. If somebody fudged the numbers in this type of report a little bit of research would expose the fraud.

An opinion poll is a different matter. Opinions are not always based in reality. If you ask someone to conduct an Opinion poll for you, and you suspect that they are fudging the numbers – where do you go to try and validate those numbers? [It’s actually the same dilemma if Y.O.U. are the pollster whose results are being questioned – how do you defend your results?]

Since you can’t prove your numbers with certainty – I think what you’re left with is proving your process. You show your work and explain why you took the steps you took.

Now, to be honest, I haven’t seen ANY documentation in this case from EITHER side regarding what exactly was supposed to happen when David Lee or anyone else at BMO wanted a report from Kevin Cassidy or anyone else at Optionable. (and I’m the kind of person who this really bothers – I mean – this would be the first thing I’d want to look at if I was either prosecuting or defending this case)

That said, I can see a problem for the defense if you are looking at Cassidy’s reports as if they were Opinion Polls. How Big? Let’s just say it’s “find your sorry-assed self in Federal court under criminal indictment” big.

If you are conducting an Opinion Poll here are some rules:

1) Don’t let anyone with a vested interest in the outcome participate.

2) If for some reason it is required to allow someone with a vested interest in the outcome to participate, disclose this potential conflict of interest.

3) Make sure your Polling process is documented and repeatable.

4) Follow the same process every time the Opinion Poll is conducted.

As far as I know, Kevin Cassidy violated all four of these rules. The question then is – is it really fair to compare Cassidy’s reports to Opinion polls in the first place?

Here are some differences that I can see between Cassidy’s reports and an Opinion poll.

1) Cassidy’s reports were never intended as generic market surveys. Their *only* purpose was to confirm on a bi-weekly and monthly basis the valuations that one person, David Lee, had been claiming in his own daily reports. Therefore somebody, David Lee or somebody else needed to provide Cassidy with the values Lee had been claiming each and every time the report was run. (That makes calling Lee’s participation in the reporting process a “scheme” seem a bit off – how else was Cassidy supposed to know what valuations to review?)

2) Cassidy’s reports were never presented as the result of a lot of statistics and number crunching. (whereas traditional market surveys are mostly crunched numbers and statistics)

3) Market surveys are conducted by uptight nitpicky people such as myself who are very particular about rules and processes. Cassidy’s reports were more like fast-glance ‘sanity checks’ dashed off by busy Options Brokers between cans of Red Bull. (Read below for my imagined re-enactment)

Those are some pretty big differences between what Cassidy was sending and an Opinion Poll conducted by a Market Research company. Cassidy was just eyeballing the numbers and sending them back - these weren't formal reports. Why do I say that? There was no formal process or documented expectations written up by either side - that's why. Cassidy could have sent back names from the phone book or his 8th grade book report about "Moby Dick" and no documented rules or processes established by BMO and agreed to by Cassidy would have been violated.

So, I’ll close tonight’s blog with an episode of Trader Elvis’ Stock Market Theatre! Tonight we will imagine the dialog that brought these reports to life. Sit back and Enjoy!

Lee: “Yo’ Cassidy here’s da shit I’ve been sending da back office for da last 2 weeks. Lookit ova an tell me if I’m wack, K?”

Cassidy: “jus a sec, um yea, dat ones good, dat one yeah, yeah, K, cool, yup, uhhhn dis one here looks off. Lemme check dat an I’ll have one of da guys write it up pretty and send it out. L8R dude.”

(Close curtain)

Disclosure: I currently own shares of Optionable. The opinions in this blog are my own - and are not intended as investment advice.

Update / Correction August 7th: Cassidy's Real Marks reports appear to have been a lot more substantial than the reports Cassidy had sent previously. Cassidy sent reports for about 4 years of which he sent Real Marks reports for only about 4 months.

Do Optionable shareholders know something you don’t, or are we too blind to see the obvious?

2011-07-28T12:26:00.000-07:00

Shareholders of a publically traded but essentially defunct company called Optionable (OPBL.ob) have dug in their heels. When the company’s shares were trading for about 2 cents apiece an offer was made by one of the company’s original co-founders to buy all the shares he didn’t already own for 3.5 cents each. Only 3.3% of shares were turned in, which means the co-founder now owns a collective 12.8% of the company.

The low take-rate on the offer may be a positive sign, but it is also worth noting that very few people seem to be looking at this as a buying opportunity. Basically, the shares rose from about 2 cents to about 3 cents and then went flat.

So who is right? Are we shareholders who declined the offer too blind to see what is obvious to the casual observer? What about the co-founder who made the offer? Was 3.5 cents a ridiculous low ball offer, or was he a fool for offering even that much?

Unfortunately, even though I’m one of the shareholders who declined the offer, and even though I know a lot of trivia about this company, I honestly have no idea if I’m right. Am I genius? Am I a fool? Or am I just a donkey, too stubborn to move?

I’m a genius:
1) One of the company’s co-founders, who also runs a profitable hedge fund known for buying beaten down assets at fire-sale prices, wants to buy the whole company. He also filed statements with the SEC in which he claims the company has not one, but two valid legal claims against other companies. He estimates that each of the two claims is worth about 500 Million – which adds up to a billion friggin’ dollars. (That translates out to nearly $20 a share for the shares he offered to buy for 3.5 cents each)
2) Two guys with Mergers and Acquisitions expertise have camped themselves out at this company for just over a year now. Although they are accepting token salaries, it would appear that the real payoff they’re after is the redemption of the options they’ve been granted. (granted around 2 cents each. (I’m figuring these guys are shopping the company for a more realistic price than the $20 per share that the co-founder is looking for.)
3) The company still has about 6 or 7 cents a share in cash
4) Back in 2007 the company lost several hundred million dollars in value when it was implicated in a scandal. If done correctly through a reverse merger, that loss could become an asset to an acquiring company looking for a tax break.

I’m a fool:
1) The company has several civil lawsuits against it, the liabilities of which are more than enough to wipe out the 6 or 7 cents a share in cash it has (if they lose).
2) Wouldn’t a reverse merger also transfer the legal liabilities from the civil cases to any potential acquiring company as well as that nice fat tax break? Because if not, what’s the hold up in selling this thing?
3) There is a Federal criminal case starting in August against one of the original co-founders of the company (not the same co-founder offering to buy all the shares) related to the 2007 scandal. When was the last time the Feds lost this type of case – even if there is some nut case out there named Trader Elvis, who is unclear if he is a genius, a fool or a donkey who thinks there are valid flaws in their complaint?

I’m just a donkey, too stubborn to move:
1) Most folks were out of this POS in 2007 and never looked back
2) I’m still here.

Nordlicht buys 3.3% of Optionable's Shares

2011-07-26T10:28:00.000-07:00

Mark Nordlicht is once again an Optionable Insider.

On June 13th Mark Nordlicht issued a "Tender Offer" through which he agreed to purchase every share of Optionable that he did not already own. (He owned 9.5% of the company when he made the tender offer, and needed to get above 10% ownership in order to be considered an Insider)

On July 19th, the tender offer expired and Nordlicht purchased the 1,586,686 that had been offered for sale. The figure represented 3.3% of the company's shares bringing Nordlicht's ownership up to 12.8%

Nordlicht's interest in Optionable is pursuing legal actions against The Bank of Montreal, NYMEX (since purchased by CME) and undisclosed "others". It remains to be seen how (or if) Nordlicht's interest will gel with Optionable's current plans.

About Me - the full Profile

2011-07-08T10:21:00.000-07:00

I updated my "About Me" profile today but here is a more long winded version:

=====================================================

About Me:

A few years back I started using the alias “Trader Elvis” on the Yahoo Finance Message Boards. Am I professional Trader? No, I’m a trader only in the most basic sense, someone Jim Cramer would call a home-gamer. Am I an Elvis Presley fan (or impersonator)? Nope, although I do think of myself as being honest, somewhat naive and a maker of bad financial investments, traits I also attribute to that other Elvis.

I’ve been following a company called Optionable since it imploded in 2007. If it wasn’t for the businesses and government agencies looking to sue Optionable, they would be nothing more than shapeless road kill by now, too worn down to even distinguish as either animal or skid mark.

So, if I'm not a professional Trader, or a lawyer, or even an Elvis impersonator, 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. A Project Manager is one of those people who gets all nervous and jumpy when folks set out to do complicated stuff without a clear game plan. It drives us nuts. And that trait is why the lack of process definition surrounding the Financial Reports which Optionable prepared for the Bank of Montreal (the key element in Optionable’s collapse) 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. To me, 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. If Optionable’s name is ever cleared, they could easily become a Project Management Poster Child to show to clients who wonder, “What could go wrong if we start doing business with a huge international bank that hasn’t taken the time to clearly document its requirements and expectations?”

I have never been an employee of Optionable or any of their affiliated businesses. Additionally I have never been an employee of the Bank of Montreal, NYMEX / CME, the SEC or the CFTC.

Trader Elvis 7/8/11

Mark Nordlicht updates his offer

2011-06-30T08:00:00.000-07:00

Mark Nordlicht has updated his tender offer and filed it with the SEC. You can view the updated tender offer here: http://sec.gov/Archives/edgar/data/1303433/000114420411038180/v227390_sctota.htm

I am an Optionable shareholder, so I'm just going to re-post the "Good Part" here, and bold the "Best Parts" and not offer any comments for now.

==== start Quote of Nordlicht's updated tender offer =============

The Purchaser is making the Offer because he wants to increase his ownership of Optionable’s outstanding Shares to the maximum extent possible pursuant to the Offer. The Purchaser understands that Optionable has a valuable legal claim for damages against Bank of Montreal (“BMO”), NYMEX Holdings, Inc. (now CME Group NYMEX, Inc.) (“NYMEX”) and others, and that time is of the essence to initiate and preserve the claims. The Purchaser understands that initiating legal actions against BMO, NYMEX and others would involve significant legal costs and that Optionable may not have the ability to fully support the claims without capital investment from its significant stockholders such as the Purchaser. The Purchaser understands he has sufficient resources to finance vigorous legal actions by Optionable against BMO, NYMEX and others but seeks to increase his ownership percentage of Optionable to justify any such investment he may make.

The Purchaser believes that BMO repeatedly in its public filings and on analyst conference calls represented that it was running a "client driven" book of business. In fact, the Purchaser believes BMO was running a book engaged heavily in market making and proprietary trading. As part of what the Purchaser believes to be a cover-up of this fraud, the Purchaser believes BMO knowingly blamed Optionable for trading losses in order to divert attention from this fraud and BMO’s general lack of risk management controls. The Purchaser believes Optionable should seek monetary damages from BMO of no less than $500 million representing the market valuation of Optionable at the outset of what the Purcahser believes to constitute BMO’s fraudulent activities.

As part of its agreement with Optionable, NYMEX agreed to joint marketing and technology cooperation. The Purchaser believes that not only did NYMEX knowingly breach its agreement with Optionable, but it deliberately listed a competitive product on the CME trading platform, thereby preparing for its own $10 billion or more merger with the competing company. The Purchaser believes that Optionable should seek monetary damages from NYMEX of no less than $500 million representing the market valuation of Optionable at the time of what Purchaser believes to constitute NYMEX’s misconduct.

==== end Quote of Nordlicht's updated tender offer =================

Mark Nordlicht makes an offer

2011-06-13T08:30:00.000-07:00

Mark Nordlicht has filed an offer with the SEC to buy all the outstanding shares of Optionable for 3.5 cents a share. Optionable management has 10 days from June 13th to reply to the offer.

You can read more about this on the SEC website:
http://sec.gov/cgi-bin/browse-edgar?company=optionable&match=&CIK=&filenum=&State=&Country=&SIC=&owner=exclude&Find=Find+Companies&action=getcompany

Disclosure: I am an Optionable shareholder.

Options are not a Buy & Hold investment

2011-06-07T06:21:00.000-07:00

BMO claims that David Lee mismarked (lied about the value of) their portfolio under his management for 4 years - and that this deception was successful in fooling them.

One of the things that bothers me about BMO's statement though is that Options are not a "Buy & Hold" investment. Options expire. David Lee wasn't able to just hold the options he bought for BMO and then lie about their value. He had to trade them. David Lee's marks were his estimation of the portfolio's value, but his trades were for real money.

Note: Neither the Government nor BMO is claiming that Lee's trades were ever falsely reported.

David Lee was either able to monetize the portfolio from 2003 until 2007 for roughly what he marked it at - or he wasn't. If he was monetizing the portfolio for roughly what he marked it at, then ummmmmm.... the books weren't really mismarked in the first place?? (am I right? Do you follow this?) And, if he could not monetize the portfolio for what he marked it at, consistently, over a period of four years, and nobody said anything to him about the discrepancy, then was there really anyone monitoring this guy?

How can BMO claim that they were truly fooled by Lee's daily valuations, or Cassidy's twice-monthly reports, which were at best an estimation of the portfolio's worth, when they had the cold hard numbers generated by Lee's actual trades?

Complaint against Cassidy has been refiled.

2011-06-06T19:06:00.000-07:00

The complaint against Cassidy was refiled on June 2^nd 2011. Of the original Six Counts, two have been removed entirely. One Count has been pared down, but still remains in the Complaint.

Count One - Conspiracy to Commit Wire Fraud
(originally filed as : Conspiracy to Commit Wire Fraud And To Make False Bank Entries)

Count Two - Wire Fraud
Count Three- Securities Fraud - Optionable
Count Four - Securities Fraud – NYMEX

The Counts removed in their entirety are:
False Statements To A Bank
Wire Fraud - - Intercontinental Exchange

Can Everything The Government Says Be True, and Cassidy Still Be Innocent?

2011-05-27T10:49:00.000-07:00

Let’s face it. The Government Prosecutors have something like 350 gigabytes of electronic data related to this case, some of which was collected by the FBI. So, I’m going to say it is pretty likely that the Government can back up the accusations in the “Overt Acts” section of their Complaint. The question we’re faced with then is: If we assume that Lee and Cassidy did all of the things listed as “overt acts” in the complaint, can it still be possible that Kevin Cassidy is innocent of helping Lee deceive his employer?

I think it’s possible, although I have doubts. As an Optionable shareholder it's not a comfortable feeling. I’m reminded of the freeze frame at the end of the movie "Butch Cassidy and the Sundance Kid". The two outlaws are holed up in a doorway, about to attempt to shoot their way out. Unfortunately for them, the entire Bolivian Army is waiting outside. The odds are so heavily stacked against them, and the outcome is so obvious that the director must have figured that the audience didn’t actually need to see the carnage to understand what happens next. Two banditos? Two? Against the whole Army? And y’know, my amigos, I’m thinking that this is pretty much how the Government and the Bank of Montreal are looking at this case too. They’re seeing Kevin ‘Butch’ Cassidy (who has a previous criminal record) and David ‘Sundance’ Lee as BANK ROBBERS and they’re seeing themselves as the Army. They certainly have more spreadsheets and emails than the Bolivian Army had bullets. (Also, in this version of the story David “Sundance” Lee has taken a plea.)*

But are they right?

For one thing, I’ve yet to see the Bank of Montreal (BMO) own up to the fact that they hired David Lee, and they are responsible for his actions. BMO may now want to see Lee as a criminal, but he is a criminal who was on their payroll. His crimes were committed in the performance of the job that they paid him to do. David Lee was a fully vested agent of the Bank of Montreal when he showed up at Kevin Cassidy's door. There was no difference between orders from Lee and orders from BMO – they were one and the same entity.

So far BMO has been successful in getting people to only look at the Lee and Cassidy partnership as it appeared in 2007, after Lee’s crimes had been exposed as well as Cassidy’s criminal past. But in order to understand what really happened here, I think you need to look at David Lee as Kevin Cassidy saw him in 2003. Landing the Bank of Montreal’s account was a huge win for Cassidy’s small startup brokerage. Rather than looking at the significance of the BMO account as 'proof' that Cassidy must have been a partner to Lee's deception (as the Government and BMO claim) - I think it is just as likely that Cassidy must have provided the best customer service to BMO as was humanly possible, and that he followed the Bank's instructions honestly, ethically and to the letter.

When BMO tells us that they had an Independent Price Verification process (IPV) and that Cassidy ‘fully knew’ what it was, that just doesn't ring true. Was there an IPV contract? Was there an IPV process guide with rules that participating brokerages agreed to follow? No, there were no such things, because the IPV process was an in-house BMO process that Kevin Cassidy had no role in. The process that Kevin Cassidy followed was the instructions that Lee, as a fully vested agent of the Bank gave him. [see Side Note below]

Now, what exactly is it that Lee, as an agent of BMO told Cassidy to do? I’m going to have to go with the accusations in the Government’s Complaint here, and say that most likely Lee sent Cassidy some numbers to verify (marks) and that as long as the brokers at Optionable who had been placing trades for Lee thought the numbers (marks) looked reasonable, (looked similar to the numbers Lee had been making trades through Optionable at) Cassidy sent them back to BMO unchanged. The Government has proof that Lee and Cassidy did communicate to eliminate any typos in Cassidy’s report. But even the Government admits that Cassidy did change one or two of the values (marks) in at least some of the reports they presented as evidence – and in that sense, even though the numbers came from Lee the reports were still independent of Lee.

So, that’s how I see the “overt actions” in the Government’s complaint being true and Cassidy still being innocent. It’s not the strongest theory in the world, but I think it is plausible. Lee was a rogue trader who was deceiving his employer. Kevin Cassidy was running a brokerage which wanted BMO’s business. Lee as an agent of BMO instructed Cassidy to perform certain perfectly legal tasks, (as far as I know it is perfectly legal to review numbers for reasonableness and then to pass them on for further analysis by Bank experts) and these tasks were not in contradiction to any other documented set of instructions from any other member of BMO. Basically, Kevin Cassidy and other members of Optionable acted in good faith, and that good faith was taken advantage of by a criminal employed by BMO.

Disclaimer: I own shares of Optionable. The statements in the blog are my own opinion based on the information currently available.

[Side Note: BMO had an internal Independent Price Verification (IPV) process. The process was meant to keep its Trader's honest. BMO accuses Cassidy of Fraud, because Cassidy's company Optionable was frequently the sole source of data used in the verification. BMO admits that the reason Optionable's data was the sole source was because David Lee insisted on it. I am confused as to why BMO thinks this is proof that Cassidy participated in Lee's scheme. To me it looks like proof that David Lee was calling the shots within the BMO department that was supposed to be policing him. Why in the world did BMO allow Lee to choose the source of verification data? Lee had so much influence over the IPV process that he even got the department to CONTINUE using Optionable AFTER other people at BMO started to complain about the valuations Optionable was providing. At Lee's insistence, BMO started using a brand new valuation service from Optionable (which was still in beta test development) rather than adding an additional valuation service. Why was Lee given this much leeway to run the IPV process Lee's way?

* In its Motion to Dismiss, Defense estimated the volume of electronic data collected by the Government to be approximately:
+ 1.5 Million Excel pages

+ 100,000 word processing documents

+ 150,000 non-transcribed audio recordings

+ 375,000 emails

Will David Lee throw Kevin Cassidy under the Bus?

2011-05-06T12:54:00.000-07:00

When David Lee was accused of being a “rogue trader” who lied to his employer about the value of their portfolio under his management, he took a plea deal and began cooperating with the Government. As part of his deal, Lee was required to be honest with the Government, and remain silent to everyone else. So, we find ourselves in a situation where we’re headed to court and the Government knows a lot about what Lee really did, and we don’t. In particular the Government should know whether Lee considered Cassidy to be a partner in crime – or just one more person that Lee needed to fool in order to pull off the deception of his employer.

The Government wrote its complaint as if it was certain that Kevin Cassidy was in on Lee’s deception. Additionally, they wrote the complaint as if no one in BMO’s Commodities Group was also in on the deception. (The Commodities Group was responsible for policing BMO’s greed-filled, Red Bull guzzling traders) To listen to the Government’s complaint, BMO’s “Police force” was blissfully and totally unaware of Lee’s deception and was completely hoodwinked by Cassidy’s reports.

So the picture we’re presented with is of David Lee, a sophisticated trader of mind-bendingly complex financial products who has a Devil of one shoulder (Kevin Cassidy) and an Angel on the other shoulder (BMO’s Commodities group). Can you imagine the dialog?
Cassidy: C’Mon Do it Do It Do it! Fake the Numbers! The jackasses in your Commodities Group will never be able to figure this complex crap out! It’s just you and me Baby! BwaHaHaHaHa……..
BMO Commodities Group: La-Di-Da.... David Lee told me to look at reports from Kevin Cassidy and not to look at reports from anybody else and that’s just what I’m gonna do, that’s just what I’m gonna do. Yup-yup-yup.

I don’t know if you have a problem with that picture, but I do. For example, the Government makes it seem like it was impossible for Cassidy *not to have known* what Lee was doing – yet at the same time – they ask us to believe that the reports from a single source, a single source selected by the very person the reports were intended to keep honest, fooled an entire “police” department for over 4 years. Now, you know why banks insist on getting reports like this, don’t you? They do it because traders of these highly complex and lucrative products often get mega-stressed out and they start making shit up. They Lie and they’re Good At It! The banks, as the people who employ these stressed out tactical geniuses, have controls in place to rein these guys in when they start running amuck. You just don’t ever, EVER, let a FOX select your Chicken Counter - and that's what we're being asked to believe BMO did.

So it goes. Despite my sarcasm above, the Government has more lethal precision in their own matters than what they are crediting the BMO Commodities Group with having. All of which has got me thinking: the Government must be pretty sure that David Lee is going to throw Kevin Cassidy under the bus when he testifies.

As far as I can see, Lee’s testimony is the best weapon the Government has. I don't think the examples provided in the Government’s complaint are enough to convict Cassidy – but Lee is an admitted liar - and has proven that when the stakes are high, and the pressure is on, he can come through with a believable story that the people with power over him want to hear.

Disclosure: Yes, I am an Optionable shareholder, and yes, during the course of this blog post I also attempted to throw both BMO's Commodities Group as well as David Lee under the Bus. Consider the source :-)

A comment from the Judge and some side notes

2011-02-21T09:17:00.000-08:00

In 2009, during the Oral Arguments to dismiss the NYMEX charges, Judge Daniels made an offhand remark, which caused me to say: “uh oh”. I don’t have access to the transcript, so the following is not an exact quote, but he said something along the lines of: I don’t know what BMO was expecting in these reports but I’m pretty sure that they were not expecting to just see their own employee’s valuations.

Note: If anyone reading this blog has access to the transcripts of those arguments, I would be happy to quote Judge Daniels’ exact statement.

His statement sounded pretty troubling to me – because I could see how it might look like that was pretty much what BMO did get. But here was my next thought. Why doesn’t the Judge know? Why doesn’t the Judge know EXACTLY what BMO was expecting to be in those reports? And believe me, I am not saying this Judge isn’t sharp, because I’m saying the opposite. I’m saying that if the Judge didn’t know what BMO expected to be in those reports – nobody did - and now we’re going to be left sorting out undocumented expectations and finger pointing. If in 2009 the Judge can’t determine what was supposed to be in there – how was Kevin Cassidy supposed to have known in 2003 when he started sending the reports? What BMO wished they had asked for after Lee’s trades lost a lot of money might well be a lot different than what they happily accepted (free of charge no less) back in 2003 when David Lee was one their star performers.

Side notes:

* David Lee is going to admit in court that he mismarked his portfolio. There seems to be an expectation that the numbers he sent to Kevin Cassidy to be validated were also mismarked. (but is this true?) There is an expectation that if David Lee’s marks had been excluded from the reports then Lee’s mismarking would have become self-evident. (but is that true? )

* BMO is saying that Kevin Cassidy ‘rubber stamped’ David Lee’s valuations and sent them back with only 1 or 2 changes. I’m thinking that making 1 or 2 changes to a report is not the same thing as a ‘rubber stamping’ it.

* There is probably an expectation that the reports should have had more than 1 or 2 variances because Lee will admit that he was mismarking his portfolio (book). But was he mismarking his entire book or just part of it? We don’t know. Of the numbers Lee will admit he mismarked, how many of them were included on the report? (perhaps 1 or 2???)

* BMO makes a claim that David Lee tricked BMO's Independent Valuation Team into only relying on valuations from Kevin Cassidy. Why is this Kevin Cassidy’s problem? BMO did have valuations from other sources. Did BMO ignore the other sources? Or did perhaps the other sources show pretty much the same valuations as Cassidy did? And, if the other sources did expose a gap in David Lee’s valuations, due to his mismarkings, why didn’t anyone at BMO say so until after David Lee’s lost a whole lot of their money - and BMO found itself in need of a scape goat for news reporters and its shareholders. (Cassidy was sending these reports for several YEARS)

* In the absence of a documented requirement stating that Lee was not allowed to contribute marks to Cassidy's market survey reports, was it reasonable for Cassidy to include Lee's marks? Was it criminal? The Government says it was, but to me I think it would have been more of a problem if for some reason Cassidy chose to exclude Lee's valuations without BMO specifically telling him to. Perhaps you agree with me, but can we go the next step? Was it reasonable for Cassidy to have 'baselined' Lee's valuations? Not just including them, but using them as the yardstick other traders valuations were measured against? Maybe, maybe not. I can say that this behavior seems at the very least "reasonable" to me, given that Lee's trades made up a very large part of Cassidy's total business. Practically every trade Cassidy made had Lee as either buyer or seller. It makes sense to me that the reports could have been built using Lee's numbers as the constant and then measure everyone else off of that.

* BMO did produce one email as evidence in which a BMO employee asked that valuations from BMO be excluded from that day's report. And to give BMO the benefit of the doubt, the way the email is worded it does sound as if the author assumes that valuations from BMO should be excluded from all reports. But using this email as evidence presents a different problem. It proves that the "no-BMO-contribution" requirement wasn't formally documented and agreed to by both parties. The Government is saying it was a crime for Cassidy to have prepared his reports (starting in 2004) based on Lee's valuations and the best proof they have is a single email written in 2006 that wasn't even addressed to Cassidy himself. (it was written to an Optionable employee - Optionable being the company Cassidy was in charge of at the time)

* The Natural gas options market involves big money yet only permits a few traders to operate there. Lee was a key trader in this exclusive market. Why should Cassidy have expected that BMO wanted to exclude him from his market survey reports? Given the percentage of the total market that Lee represented – can’t we label any market survey that excludes him to be flawed - since Lee was such a large piece of the total pie.

* It is reasonable for Cassidy not to have identified Lee as being a participant in the market survey? Did Cassidy ever identify any of the sources in the survey? Did Cassidy ever try to present Lee’s marks as someone else’s marks? I’m not seeing that he did.

* Lee will admit that he lied to BMO about the value of his book. But BMO still lost money fair and square when the volatility in natural gas options dried up. Why hasn’t BMO admitted how much money they lost fair and square, and why aren’t they suing Lee for the balance? (the balance here being the difference between what BMO really lost and how much they had to write down due to Lee’s inflated marks.)

* Cassidy’s market survey reports were not of the entire natural gas options market – but only selected items within the market. Someone at BMO had to tell Cassidy each time he took a market survey which items they wanted surveyed. Who told Cassidy what items to survey? Was it BMO’s Independent Valuation Team or was it Lee? It is documented that BMO’s IPV team gave Lee blank grids to complete. Does anyone know what BMO expected Lee to do with the grids their IPV department gave him? Why give someone a grid if they are not supposed to participate in the survey?

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

2011-02-18T14:35:00.000-08:00

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.

You call THAT a Smoking Gun?

2010-02-24T08:26:00.000-08:00

The type of trading the Bank of Montreal (BMO) was doing with Optionable is complicated stuff. One would think that a large multinational bank would specify precise requirements as to what it expected in terms of reporting about this complicated activity.

You know those highly complicated documents that specify exactly who sends what to whom, when to send it, what's included, what’s excluded, what rules or models are used in the calculations, and who it is distributed to. I'm thinking in terms of those complex process flow documents that read pretty much like a legal contract.

Well............... BMO's lawyers have proclaimed in Case document #74 on page 28 (of 82) that they have produced a Smoking Gun that Optionable knew what BMO's requirements were and hence are guilty of fraud because they were not meeting those requirements.

Oh, you say...... do tell, what page of the Reporting Requirements documentation is this Smoking Gun found on??????

Well, no, BMO replies..... Our Smoking Gun isn’t exactly a document that explains our Requirements for the reports. Rather it is an email. It is an email from a BMO employee to an Optionable employee where we actually ask for the type of report we are now claiming to have asked for all along.

In my opinion, rather than proving BMO's claim that Optionable "knew what BMO wanted and expected" from 2003 until 2007 this "Smoking Gun" email written in late September 2006 proves something quite different. It proves that BMO’s did not have formal requirements for the reports and that the informal requirements changed from time to time on a report to report basis. Additionally, since the BMO employee felt the need to specify that BMO contributors be excluded from this specific report, it shows that BMO was fully aware that BMO contributors were not always excluded from the reports by default. No where in the email does the BMO employee indicate that the “No BMO contribution” requirement was preexisting nor that it should be implemented by default in the future.

Remember folks, BMO is suing Optionable for FRAUD because they failed to meet certain reporting requirements – and yet they offer no documentation that these requirements were ever mutually agreed to by BMO management and Optionable management. Instead they produce a single email from “one guy” at BMO to “another guy” at Optionable in which a one time Requirement is specified.

BMO's "Smoking Gun" proves the following:
1) The reporting process was not clearly defined
2) BMO had an awareness that reports from Optionable did not always exclude BMO sources as contributors.

Personally I don't think it is fair for a large multinational bank to sue a small brokerage firm for not following a process that they did not bother to formalize. The pitiful state of Optionable's business is testimony to the damage BMO has inflicted upon Optionable.

(disclaimer: I am currently an Optionable shareholder)

Excerpt from BMO’s document #74 page 28 of 82:

“On September 28, 2006, the director of Market Risk for BMO’s commodity line of business e-mailed Steven Laker of Optionable “to request Optionable to provide us with independent market quotes as at the close of [the] September 28, 2006 trading day. . . . It is understood that the quotes will be verifiable from IM [instant messaging] sheets on your archive . . . . It is also understood that Bank of Montreal will not be a contributor to the quotes you collected upon this request.”

The full text BMO’s Document #74 can be found on Pacer:
Case 1:09-cv-07557-GBD
Title: PLAINTIFF’S MEMORANDUM OF LAW IN OPPOSITION TO MOTIONS TO DISMISS THE COMPLAINT

NYMEX Optionable Timeline

2009-12-04T13:53:00.000-08:00

I thought it might be helpful to post of timeline of events between CME / NYMEX and Optionable.

* (CFTC alleges) that in 2003 David Lee began a deception against BMO with Kevin Cassidy
(source CFTC complaint - page 15)

* September 2006 Optionable begins selling BMO reports under the name Real Marks
(source CFTC complaint - page 16)

* December 2006 (estimated) NYMEX begins due diligence of Optionable in preparation of investment
(transaction occurred on 4/10/07 and took at least 5 months to negotiate - source Optionable Support of MTD page 6)

* January 22, 2007 Optionable Announces NYMEX Holdings to Purchase 19 Percent of Outstanding Shares of the Company
NYMEX Chairman Richard Schaeffer said "OPEX technology is uniquely positioned to help us achieve our goals"
(source Optionable press release : http://www.optionable.com/news-articleid=34.htm )

* Mar 9, 2007 - Optionable announces Trading of Swap Contracts on OPEX through NYMEX ClearPort
(source Optionable PR http://www.optionable.com/news-articleid=39.htm )

* Mar 15, 2007 - Optionable buys two NYMEX membership seats for approx $1.2 million
(source: http://www.optionable.com/news-articleid=40.htm )

* April 10 2007 - NYMEX completes purchase of 19% stake in Optionable
(source Optionable PR filed with the SEC http://sec.gov/Archives/edgar/data/1303433/000093244007000296/ex99-1_1177228.htm )

* Apr 12, 2007 - Optionable announces Trading of NYMEX Light Sweet Crude Oil Options on OPEX
(source Optionable PR http://www.optionable.com/news-articleid=43.htm )

* April 27 2007 BMO announced anticipated loss between C350 to C450M.
(source CFTC complaint - page 24)

* May 2 2007 Optionable announces that Albert Helmig will replace Kevin Cassidy
(source Optionable PR http://www.optionable.com/news-articleid=50.htm )

* May 8, 2007, BMO announced termination of all business with Optionable
(source: This event was included in the May 9 Optionable filing with the SEC)

* May 9, 2007, NYMEX announced that it will offer options trading on CME Globex in direct competition with Optionable's OPEX.
(source: May 9 Optionable filing with the SEC)

* Historical Prices:
- May 8 2007 closing price 4.64 volume 710,500
- May 9 2007 closing price 2.81 volume 11,472,300
- May 10 2007 closing price .85 volume 19,040,000
( Source Yahoo Finance: http://finance.yahoo.com/q/hp?s=OPBL.OB&a=04&b=1&c=2007&d=04&e=31&f=2007&g=d )

* January 28, 2008 CME in talks to buy Nymex for about $11 billion
(source New York Times http://www.nytimes.com/2008/01/28/business/worldbusiness/28iht-cme.4.9550224.html )

* March 18, 2008 CME Buys Nymex for $9.48 billion
(source Associated Press / MSNBC http://www.msnbc.msn.com/id/23670813 )

Disclosure: I am an Optionable investor, as is CME / NYMEX

Notes from the NYMEX - Optionable Arguments to Dismiss

2009-11-24T13:24:00.000-08:00

11/24 Arguments to dismiss the NYMEX / CME case

United States District Court, 500 Pearl Street, New York, NY 10007-1312
Hon. George B. Daniels, Room 21D (21st floor)

Prosecution: Martin I. Kaminsky (plus 1 associate)
Defense:
Optionable: Michael G. Bongiorno (plus 2 associates)
Cassidy: Lawrence R. Gelber
O’Connor: Liam O’Brien
Nordlicht: Eliot Lauer (plus 1 associate)

In attendance, but did not speak: Thomas Burchill President and Director of Optionable

Note: Audio recording isn’t permitted, so the following are my notes, taken to the best of my ability. It should be noted that I am long OPBL stock.

First up: Michael G. Bongiorno (for Optionable)
1) The class action suit dealt with many of NYMEX’s claims, and that case was dismissed.
2) Optionable did not gain from the sale of shares to NYMEX
3) NYMEX was a sophisticated investor who had the means and resources to fully scope out Optionable prior to their investment.
4) NYMEX’s complaint is totally dependent on accusations made in the CFTC and SEC complaints. This brought some hard questions from the Judge. The Judge seemed to be saying if an accusation was valid in one case, why shouldn’t it also be valid in this case? To me, it appeared that Defense was saying that the CFTC and SEC has a different level of detail (particularity) required to make an accusation than a company such as NYMEX has. In addition, examples were brought up where NYMEX misquoted the CFTC and SEC complaints – so that NYMEX was sourcing the CFTC for charges that weren’t even in the CFTC complaint. (See Side note #1)
5) The Judge did not voice any further hard questions for any other defendant.
6) Bongiorno summarized NYMEX’s other complaints as:
a. NYMEX says that Optionable lied to the SEC about the importance of BMO
b. NYMEX says that Optionable didn’t disclose Cassidy’s history
c. both of these arguments had been disposed of in the class action suit

Lawrence R. Gelber (for Cassidy)

1) Optionable was not the type of broker that made recommendations to either buy or sell. Rather Optionable matched buyers and sellers.
2) The type of trades at issue here are called “Straddles”. Straddles are a defensive purchase in which BMO could make money regardless of whether the market when up or down. Straddles are dependent on volatility rather than a price point. If volatility dries up, the straddle becomes less valuable.
3) In their press release about their losses, BMO stated that the volatility had dried up, and this was the cause of their large loss.
4) Gelber says that NYMEX is trying to claim that non-disclosure of Cassidy’s past equals concealment. However Cassidy’s past was a matter of public record and could not possibly be concealed.
5) Gelber says that 5 years (and not 10 years as NYMEX suggested) is the amount of time that prior convictions need to be disclosed. Gelber points out that the behavior that brought about Cassidy’s convictions happened in the late 80s to early 90s.
6) The “bribes” NYMEX is accusing Optionable of giving Lee and Moore average out to $83 per month. Lee and Moore each made over 200K per month, so the implication that their morals were compromised by Optionable’s gifts seems silly.
7) In asking the Judge to dismiss the charges (as the other defendant’s lawyers did) Mr. Gelber also asked the Judge to consider dismissing the case right then and there “from the bench” – which unfortunately did not happen.

Liam O’Brien (for O’Connor)

1) NYMEX does not source their accusations against O’Connor
2) O’Brien points out several paragraphs in the NYMEX complaint that incorrectly source other complaints.
3) Even if the accusations are allowed – they don’t meet the PSLRA & 9(b) requirements.
4) The Martin Act also precludes NYMEX from making this type of claim against O'Connor.
5) NYMEX completely ignored points in O’Connor’s motion to dismiss, so O’Brien assumes that NYMEX has conceded these points.

Eliot Lauer (for Nordlicht)

1) Nordlicht isn’t even named in some accusations that NYMEX is basing their case on.
2) Lauer takes issue with NYMEX labeling Nordlicht a 'controlling person' within Optionable.

Martin I. Kaminsky (for NYMEX)

1) Wants to refile the NYMEX complaint to include accusations BMO made. (NYMEX filed before BMO) (Judge was not supportive of this strategy)
2) NYMEX claims that Optionable made a warrantee to NYMEX that Optionable was not doing anything illegal in their business dealings. NYMEX claims that Optionable's warrantee constitutes fraud.
3) NYMEX claims that Optionable lied to the SEC when it said it had a lawfully conducted business.
4) NYMEX claims that Optionable told NYMEX that all NYMEX needed to know about Optionable was contained in Optionable’s SEC filings.
5) NYMEX (in the courtroom, not in their complaint) says that they hired their own investigators who spoke with ex-employees of Optionable. NYMEX volunteers this information but doesn’t make an accusation based on that investigation.
6) The Judge seriously took issue with NYMEX’s inability to say what it was that Optionable supposedly said that caused NYMEX to later believe that it had been lied to. Kaminsky kept going back to the notion that Optionable’s SEC filings were the fraud made on NYMEX – because Optionable told NYMEX that their SEC filings were accurate.
7) The Judge asked Kaminsky what specific facts he would want to take from BMO’s complaint if the Judge allowed them to be included. {note – Kaminsky did reply with an example – but I didn’t grasp it – to which the Judge replied “those are not facts”.
8) Kaminsky stated that NYMEX did not need to PROVE their case in their complaint, they only needed to show that it was likely that fraud occured.

Side notes / personal notes:

1) It took me a while to get the significance of Bongiorno's point #4 (above). We know that the NYMEX case is dependent on the CFTC and SEC complaints. We know that both of those complaints are being reviewed for dismissal by Judge Daniels. We know that if those complaints are dismissed then the NYMEX complaint falls apart. (Which is why NYMEX now wants to add BMO's complaint to their own.) But what I didn't grasp at first was that if Bongiorno can claim that NYMEX is not eligible to use the CFTC and SEC complaints (because the Government has lower requirements than other plaintiffs) then the NYMEX complaint should fall apart EVEN IF the CFTC and SEC complaints survive their motions to dismiss. This explains why Judge Daniels was taking a harder stance on this point than anything else the Defense said....... Bongiorno was trying for a Grand Slam here.

2) In pointing out some of the errors in NYMEX's complaint, one of the defense lawyers mentioned that NYMEX claimed that Optionable made excessive wedding gifts to David Lee's sister. David Lee however does not even have a sister.

3) In regards to the bi-monthly reports at the heart of all the charges against Optionable, one of the Defense lawyers pointed out that a) prior to the paid RealMarks reports, Optionable provided these reports for free as a courtesy to BMO and b) Optionable employed several brokers who made these type of trades 'all day long' and as such they were qualified to be able to determine if Lee's marks were 'reasonable' without 'shopping them around the market' c) Optionable never promised to obtain 'independent' marks, rather they offered to review them for 'reasonableness'

4) Mr. Burchill sat by himself and looked sad. I wanted to buy him a cup of coffee.

5) In the middle of the arguments, the Judge needed to attend to two criminal cases. I sat through most of these as well, and found it interesting to hear the Judge deal with what appeared to be repeat offenders in drug dealing. The two NYMEX lawyers sat next to me during those proceedings.

6) The tables for the Prosecution and the Defense were not side by side in this court room, but rather front and back. Prosecution sat in front, the Defense in the back. The Defense table was CROWDED. I couldn't help thinking that was a heck of a lot of legal talent to defend a company with 4 million in cash left in the bank... even with Cassidy, O'Connor and Nordlicht paying their own way.

7) While the Judge grilled Kaminsky pretty hard, he did allow him to talk for a long time. I made the mistake of tuning him out after a while - and then I got nervous when I 'woke up' and realized that if he is talking this long, he might have actually said something. The Judge appeared to have been listening to every word - for better or worse.

8) Worth reading: Wikipedia defines the PSLRA: http://en.wikipedia.org/wiki/Private_Securities_Litigation_Reform_Act

Optionable's Office in Ossining NY

2009-04-01T12:53:00.000-07:00

Optionable's First Annual Shareholders Meeting

9:50 I arrive at 95 Croton Ave Ossining NY which is a plain looking office building. There are retailers such as a computer repair shop on the ground floor. Upon entering the building I see a memo from Optionable taped to the wall. The meeting has been moved to a restaurant just up the road. I had hoped to see their office space just to see if anyone works there. Oh well.

9: 55 I arrive at The Brasserie Swiss Restaurant & Bar at 118 Croton Ave Ossining NY

There’s a line up of “The Usual Suspects” seated at a table which is facing an audience of 5 people. One of them warns me not to eat all the food. I’m like – Dude – if you think I’m here to eat my way back to break-even you’re gonna need a bigger spread. I figure I’m dealing with Burchill, and it turns out I’m right. Later in the session Burchill makes a few more remarks that clearly show his propensity to pinch pennies. Given that OPBL was forced to hold this meeting by Mark Nordelicht (who is not in attendance) over a matter they have since resolved, I decide to give Burchill some slack about seeing this whole shareholder’s meeting as a waste of “his” money. There are a few remarks about CNN and CNBC being in the parking lot followed by laughter. There are no jokes about Kevin Cassidy or the SEC / CFTC lurking about.

10:00 Introductions
Optionable:
1) Charles McCormick – outside council to Ed O’Connor
http://www.mcoblaw.com/ourattorneys_charles.html (slick)

2) Ed O’Connor – Meeting Chairman (talks fast about complex items but comes across as energetic rather than shifty)

3) Thomas Burchill - President and Director (comes across as Ivy League Old Money)

4) Andrew Samaan – New to the team He didn’t speak other than to say his name – I didn’t get a read on him. http://columbiasportsgroup.com/Home.html

5) Marc-Andre Boisseau /- Chief Financial Officer/ (deep voiced curly haired guy in a wrinkled shirt)

Shareholders / Audience:

Shareholder 1
Shareholder 2
Manny Tzagarakis from the accounting firm Sherb and Company
http://www.sherbcpa.com/partners.html#manny_tzagarakis

Marni Rae Robin Lawyer from McCormick & O’Brien who handled the proxy
Shareholder 3
Peter (???) from Innisfree M&A Incorporated which handled the Proxy Solicitation

10:04 Up for nomination are: Marc-Andre Boisseau, Thomas Burchill, Edward O’Connor and Andrew Samaan. Each shareholder is polled to see if they have already voted. All shareholders reply in the affirmative.

10:05 Peter from Innisfree announces that all nominees have been approved by over 96% of the vote. (which means NYMEX didn’t vote against them) Nominees are congratulated. Nominees thank shareholders for their support.

10:06 Meeting is formally closed

Questions:

Status of OPBL’s 4 Patents –
Ed – Patent #1 allows for bilateral trading, but after Enron no one traded bilaterally. This invention was never put into OPEX. Ed is meeting with a patent attorney and the inventor to see if they should continue to pursue this pending patent. Don’t pin your hopes on this patent – however if the credit default market ever starts to unwind, this patent could be useful. O’Connor cautions that the government is moving even further away from bilateral trades.

Patent #2 is a depth of market montage. It shows a combination of structures – rather than just call spread or put spread – you can put 7 or 8 leg structures on it – with an assigned delta - There are other similar inventions out there, so OPBL may not own this in the future.

Patents #1 and #2 will be “up to bat” within the next 30 days. OPBL’s 2 other patents will not be up to bat for 6 to 9 months.

Ed is talking pretty openly in the spirit of full disclosure. Ed indicates that the inventor of Patent #2 might be willing to work with OPBL if they move forward with it. Ed does not mention the inventor by name – but Mark Nordelicht was the lead guy on all the patents (although not the only guy).

What is the Business Plan?
Burchill: take the assets that the company has a) the public shell b) cash c) technology platform and try to find the right path forward to deploy those assets to maximize shareholder value. What that involves is looking at a number of companies that might become merger or acquisition targets. It will take a few months to identify a target and then do due diligence to scope them out.

Is NYMEX out?
No, they are a shareholder. There have been no recent communications between OPBL and NYMEX.

Is the Insurance policy paying the legal bills?
Boisseau – that’s correct – but we can not promise that insurance policy will cover everything – there are just too many uncertainties.
Burchill – however there is currently still room left on the insurance policy

OPBL is authorized to repurchase shares. Will they?
Boisseau – That authorization was from a different time. Currently cash is king. (translation: there are no plans to repurchase shares)

There was an attempt to seize the assets of one of your bank accounts. Is that still a risk?
Burchill: Ironically there was an account at the same bank with much more money in it which we have withdrawn and relocated. A previous officer of the company (we can assume this means Kevin Cassidy) was a signatory on the account that the bank tried to seize and he has since been removed.

Does OPEX have any value?
Burchill: We believe so. Yes. I met yesterday with a software company that is also involved in a trading solution and we discussed working together. (Burchill later says that Charles Wilson was at this meeting) We have continued to invest in the OPEX platform and believe it is up to date.
Boisseau: please remember there is no guarantee. A platform needs good software, but it also needs liquidity.
O’Connor: it’s not necessarily the best platform that gets the most attention but the one with the most liquidity. In the beginning traders never have an interest in a new platform. But once we finally got them to look at OPEX and they saw stuff trading on it, they started to believe in it, and then we got the liquidity. So you need 2 things. The platform has to be viable and you have to have the distribution. So we’ve been talking to some people where we have one piece (the platform) and they have the other (the distribution) and we’re trying to put the 2 together.

Are you working with Charles Wilson on OFX Trading? http://www.ofxtrading.com/
Burchill: Charles Wilson is a technical consultant to the company who continues to work on the platform. He attended the meeting I was at yesterday.

Is Wilson launching OFX Trading in May of this year based on OPEX?
Burchill: He is helping us find viable partners, but he is not launching anything without our approval. One of the possible paths would be a joint venture with Wilson’s company Netserity. http://www.netserity.com/ but we are looking at other partners as well.

Given your (Burchill) history in media are you looking to turn Optionable into some totally different type of company – such as a media company?
Burchill : One of the options is set up something separate from the OPEX platform. It could be difficult given the company’s history (scandal) to go back to the same space. It may be better for us to separate from the OPEX platform and move into a different space.

If you separate from OPEX will you set up an entertainment company?
Burchill: no, we’ve looked at everything from a healthcare, software, building products and wireless technology. That’s why we hired a financial advisor to help us find the right company at the right stage of growth. The company we spoke with yesterday is very much in the trading area, but in a support capacity and that is where the compatibility lies. We are looking at it as very much a clean slate without any predetermined objectives.

The 8-K filed on Friday was a bit confusing and it seems to pertain to OPEX.
Boisseau – I can help clarify that. The company had entered into a transaction with a broker to create OPEX International and there was a request for confidential treatment. Nothing ever came of this so the recent 8-K just removed that request for confidentiality.

Who is the contact at Optionable? Should I just leave a message at the corporate number?
Burchill: yes, I will be checking it periodically. I will respond to questions.

Closing remark – Burchill: we will be working hard over the next year to maximize shareholder value. The good news is that a lot of companies need capital and we are blessed to have good capital. It will be our job to sort through where the opportunities lie
Thanks for coming out.

Post Q&A

Ed O’Connor was explaining some of the intricacies of OPEX’s matching engine with great enthusiasm to which a shareholder replied: “I can see you really are a trader at heart” to which Burchill replies: “That’s what he’s doing everyday“
O’Connor: I traded for 17 years and now I’m back doing it electronically.

Class Action OUT / Government Steps IN

2008-12-04T07:51:00.000-08:00

OK, so things change.

The Class Action Lawsuit was in fact dismissed, but the FEDs have moved in. The SEC has filed a complaint against several of the players here and additionally the CFTC has filed a complaint which includes Optionable the company along with 4 other individuals.

The CFTC's complaint is civil not criminal. The CFTC has the benefit of research done by the SEC and the FBI (the F.B.I. fer crying out loud) that the class action lawyers did not. So when you couple the lower standards of proof required in civil matters with the type of information the SEC and FBI can collect..... I am definitely expecting that OPBL to have to pay to settle their portion of the CFTC complaint.

Ed O'Connor and Scott Connor may fight to have the restrictions lifted from allowing them to ever work in the financial area ever again.... and to me anyway, that would be a fight worth having. Scott Connor has no motivation what so ever to NOT throw Kevin Cassidy under the bus. The exact burden that OPBL the company will be forced to bear may hang in limbo for another year if the other defendants fight amongst themselves in court.

What I'd like to see is OPBL the company cutting a deal upfront and paying its share of fines. This would allow whatever is left over to be distributed to shareholders. The value of the OPEX Trading platform becomes imperative here because there is no way to connect the resale value of the OPEX trading platform with the "ill gotten gains" of Kevin Cassidy. A percentage of OPBL's cash however can be linked to revenue from BMO.

The stock is trading between 1 and 3 cents. I believe that people with a basis of 6 to 8 cents will still come out of this with a profit if OPBL cuts a deal and gets out of the way of the SEC and CFTC complaints.

Case Dismissed against Optionable

2008-09-18T11:29:00.000-07:00

New York district Judge Lewis A. Kaplan has granted a motion to dismiss the consolidated class-action lawsuit against Optionable.

My source for this information is the article below which was published on September 16, 2008.
http://www.theglobeandmail.com/servlet/story/LAC.20080916.RTICKER16-2//TPStory/International

It is worth noting however that Judge Kaplan has given the plaintiff (KLD Investment Management) another chance to beef up their allegations by October 6th. You might say this is the last call for the anonymous sources whose comments KLD built their case on to step out of the shadows. KLD made an open plea to the anonymous sources back on January 5th. (http://biz.yahoo.com/pz/080105/133852.html) So far, the call for help has fallen on deaf ears.

Update: Tip o the hat to OPBLIVES for finding this link:
http://securities.stanford.edu/1037/OPBL_01/2008915_r01m_073753.pdf
This is the full text of Judge Kaplan's Dismissal