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

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?

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 on 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 :-)