Mismarked

Let's say you and I were planning to see a movie together, and had chosen a financial thriller called "Mismarked" that promised deception, intrigue and betrayal. 

We'd buy our popcorn and for the next hour or so we'd cheer as the misunderstood good guys battled the treacherous bad guys.  Intuitively, we'd know that the good guys were going to win, but part of the fun would be watching them lose almost every skirmish along the way.

Whatever that version of "Mismarked" might lack in originality, it makes up for by honoring the yearning deep in our hearts for the truth to prevail.

"Mismarked" would also be a good title for the story of the Bank of Montreal's 2007 trading losses, but this story wouldn't make a very good movie. In this version of "Mismarked", despite years of legal wrangling through which the truth was finally revealed and laid bare, the truth was never acknowledged by any of the lawmakers. Instead what we're left with is a hodgepodge of settlements and plea bargains that obscure the truth.  The good guys remain misunderstood and the bad guys get to walk away, untouchable. 

Do you have a few minutes?  If so, allow me to tell you the story of "Mismarked".  Listen.

David Lee was a Natural Gas trader for the Bank of Montreal whose book (his portfolio) contained an enormous amount of thinly traded, long dated, out-of-the-money options. (Let's call them "Junk Options")  Lee’s high-risk trading wasn’t illegal or even secret yet it doesn't mesh well with the safe and conservative image the Bank of Montreal presents to the public. 

The Bank of Montreal skillfully tracked every penny that came in and out of David Lee’s book and the profitability of each trade.  They're bankers after all, it's what they do.  The Bank’s weak spot was tracking the current value of the junk being held in Lee's book at any given time. The Bank knew exactly how much Lee paid for junk, exactly how much he sold the junk for, and exactly how much he gained or lost on each junk trade. Yet even with all that information, figuring out how much the junk was worth, while Lee was actually holding it, was difficult to calculate and the results were not precise. 

(a word about junk options) Options are time-bound investments.  If an option can’t be exercised for a profit, it expires and becomes worthless.  Short term, in the money options are widely traded, which makes their current value almost as easy to figure out as looking up stock quotes in the newspaper.  (It's not quite that easy - but that's the general idea) Long term, out of the money options (junk) are thinly traded, because institutions take steps to limit their exposure to them.   The lack of trading activity makes determining the current value of junk options an industry wide challenge.  It's not a weakness unique to the Bank of Montreal, nor is it a weakness they're blind to. 

The vagueness of junk's value in the hyper-precise banking world can be exploited by traders as a way to even-out minor fluctuations in their books.  Exploiting this weakness is a double-edged sword called "mismarking".  Banks and institutions, not just the Bank of Montreal, have a way of ignoring mismarking while their traders are up, and then using it as an excuse to fire them when their traders are down. (For a current example of a bank other than the Bank of Montreal doing this, try googling CitiBank's Carl Bonde)

The Bank of Montreal's records estimate that David Lee's book (his portfolio) contained an estimated 7.6 million junk contracts. That's *A LOT* of junk.  To put it into context, Warren Buffett is on record as saying that 23 thousand junk  contracts is an unmanageable number. (details here - explained in footnote #12)  Only the Bank itself knows what percentage of Lee's total book 7.6 million junk contracts represented, but it's safe to speculate that it was a significant amount.  The Bank can claim that Lee mismarked the value of the junk options in his book, but they can't deny they had a darn good idea as to the number of them he was holding. The 7.6 million estimate comes from the Bank's own records.  That amount of risk in any one book should have been keeping someone at the Bank besides David Lee awake at night. 

Here's where Bill Downe enters the story.  Bill Downe had only been CEO for a few months when the Bank disclosed David Lee's trading losses.  Lee's losses were the result of flawed risk management policies and before becoming CEO, Bill Downe was the person in charge of risk management at the Bank. Critics and investors weren't panicking because they thought Bill Downe was some rookie CEO tasked with cleaning up someone else's mess. No! They were panicking because preventing traders from racking up huge losses had been Bill Downe's one job, he failed, and now he was running the whole bank!  Ruh Roh!

The Bank hired a crisis management firm willing to make Lee's trading losses look like the result of a criminal conspiracy rather than the failure of Bill Downe's risk management policies. Please stop reading for a moment and consider that last sentence.  That one sentence actually tells you all you really need to know. 

Court records show that in order to deflect attention away from Bill Downe, the Bank paid the crisis management firm to meet anonymously with reporters in an off-the-record session.  The crisis management team shifted the blame for the trading losses to an alleged conspiracy between David Lee and one of the Bank's vendors called Optionable.  Within hours of that meeting, stories appeared in the financial press revealing that Optionable's CEO had a criminal record. The claim was a red herring - it was true, but irrelevant. The red herring scheme worked.  The notion that the bank's losses were the result of a conspiracy between a "rogue trader and a criminal" stuck. To this day most accounts of BMO's 2007 trading losses that you're ever likely to find retell the crisis management firm's version of events. 

The time has come to say goodbye.   

Eight years is a long time to write about one conflict, and it's time for me to accept defeat and step away from the Trader Elvis soapbox.   

In an attempt to sum up my experience as Trader Elvis, I'd like to borrow from the fable: The Emperor's New Clothes.

Bill Downe quite naturally fills the role of the Emperor, which allows me to take the role of the naive boy who points out to the horror of the townsfolk that the Emperor is naked.  But here's where disappointment sets in.  While I think the publicly available evidence clearly shows that the Emperor is naked as a jaybird - that moment of truth when the crowd's denial is suddenly shattered just never happened. 

So be it.  I'd like to thank everyone who has been willing to talk to me about this case over the years, regardless of which side you're on.  I've learned a lot along the way - and there were some areas where I needed quite a bit of patient explanation.  Meeting Kevin Cassidy in person in late 2014 was the high point of my time blogging as Trader Elvis.  I had to pinch myself several times to make sure I wasn't dreaming while driving Kevin and his lawyer Lawrence R. Gelber to lunch in my beat-up Honda Civic.  It was very gracious of them to meet with me and let me know that they've been following this blog all along. (OMG!)  

Also - I'd like to make a shout-out to all the other Optionable shareholders who are still holding their shares.  I've met a few of you in person and chatted with many others via the Yahoo Finance message board. We may be Krazzzy, but we're not stupid.  Not to oversell it, as I'm still a shareholder too, but let's give ourselves credit for identifying what at the time was a great investment.  Optionable had an electronic trading platform that was gaining industry acceptance, as well as ownership interest from the NYMEX.  None of us could have predicted the impact that the actions of one of their customers would have on the company.  In closing, I'd like to thank anyone who has ever taken the time to read this blog for giving our point of view a chance to be heard.  Here's to that yearning deep in our hearts for the truth to prevail. 

And just like that, they heard a rustling noise..... Trader Elvis has left the building.

Disclosure: I am an investor in Optionable.  This blog does not offer advice on buying or selling any security. 

Optionable Archive - Selected Docs #2

Image Source: wordle.net

Today Circuit Judges Dennis Jacobs, Robert D. Sack, and Gerard E. Lynch issued a Summary Order (signed by Clerk Catherine O'Hagan Wolfe) that affirmed the Order of Restitution issued by Judge Griesa in the case: United States of America v. Kevin Cassidy.  Griesa's order calls for Cassidy to pay BMO $8,635,059.

In my opinion the Summary Order fails to provide a just resolution to the 2007 trading losses that the Bank of Montreal experienced as a result of their own flawed risk management process as implemented by the Bank's current CEO Bill Downe.  (Back in 2007, Downe was in charge of the Division in which the trading losses happened) 

Going forward, part of the mission of this blog will be to retrieve documents related to this case and others involving Optionable and republish them in a SEO-friendly format. This will insure that they remain publicly accessible via search engines such as Google, Yahoo and Bing for years to come.

The document below, presented in its entirety, is the press release Optionable issued on October 27, 2013 exposing that the Deloitte Report (part 1 / part 2) the Bank of Montreal used to vilify Optionable and its CEO Kevin Cassidy actually exonerated them both.  Here then is the press release:
--------------------------------------------------------------------------------

Deloitte Report Exonerates Cassidy in Bank of Montreal Fraud

October 27, 2013 - Freshly reviewed evidence incontrovertibly exonerates former Optionable CEO Kevin Cassidy in relation to losses announced by Bank of Montreal in April 2007 in their energy trading division. Cassidy, in an effort to avoid trial due to the complexity of the case and a previous criminal history related to alcoholism, plead guilty to one count of conspiracy to commit wire fraud. A clear reading of the evidence, however, indicates that not only did Mr. Cassidy not engage in any wrongdoing but in fact was a major asset aiding BMO in its effort to overcome problems arising from massive over trading and shoddy risk management.

In May 2007, BMO announced that based on an independent report from Deloitte consulting they "had concerns about the quotes coming from Optionable". The clear implication was that the Deloitte report cast doubt on the integrity of quotes coming from Optionable. However, that was not the case and in fact, Mr. Cassidy of Optionable was cited as a source by Deloitte making suggestions as to how to improve valuation verification practices.

Furthermore, an examination of the Deloitte report clearly shows that far from casting doubt as to accuracy of Optionable quotes, the report clearly indicates that BMO was misinterpreting the Optionable quotes and that the Optionable quotes were indisputably accurate based on the size of BMO’s position and prevalent industry practice.

The decision to misrepresent the findings of the Deloitte report to the public was part of a broader strategy by BMO to divert attention from their disastrous risk management practices and the fact that they had lied to the public in stating that they were running a conservative, client driven book. In an internal email, CEO Downe summarized the BMO predicament. Downe commented “It happens to be a fact and you couldn’t lose this much money by taking one gigantic bet if you had risk controls in place.” BMO had numerous times disclosed to the public they were running a conservative client driven book. The fact that BMO was engaged in massive speculative trading was deliberately never disclosed to the public by BMO at the time and has still not been disclosed. Years of gains in their natural gas trading book had padded earnings at the Canadian bank and had resulted in increased bonuses for BMO executives.

When the natural gas positions run by head trader David Lee began to experience losses due to excessive speculation, BMO executives moved quickly to cover up the size of their positions. Investment Banking Head Yves Bordeaux implored David Lee “to come up with a plan because how are we going to explain things to people who thought we were just trading around customer business." Faced with an angry shareholder base, potential regulatory actions, and possible downgrades by rating agencies, BMO, led by CEO Downe, settled on a plan to “blame Optionable” and “redirect the spin by suing Optionable.” Mr. Downe chose to participate in the cover up and set up Cassidy to take the fall for the BMO fraud rather than disclose the fact that BMO was running a book that was not conservative and customer driven but was engaged in massive speculation.

“Our hearts go out to former CEO Kevin Cassidy and his family”, said Dov Rauchwerger, Optionable CEO. ”I can only imagine what it must be like to be set up to take responsibility for someone else's crimes. We are gratified that the documented evidence has incontrovertibly exonerated him, however, and we hope this will provide solace for him and his family."

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

BMO Source Misrepresented Deloitte Report When Implicating its Own Trader and the Brokerage He Used.

On April 27, 2007 the recently appointed CEO of the Bank of Montreal, Bill Downe, took "decisive actions" to curb losses from its $350 million to $450 million natural-gas trading blunder.  A bank source told journalists that Downe’s actions were based on a report conducted by forensic auditors Deloitte and Touche.  According to the source, Deloitte found “serious mismarking of the book of natural-gas options” managed by the Bank’s trader David Lee and indicated that some of the prices used in Lee’s mismarked book of trades were provided by brokerage firm Optionable, of which I am an investor.

Although the Bank source volunteered these incriminating details to the Press, the Bank managed to keep the contents of the Deloitte report a proprietary secret.  In October 2008 the Bank successfully blocked efforts to access the Deloitte report by Class Action lawyers who were hoping it contained a 'smoking gun' they could use in a suit against Optionable.  In December 2009, long after the Class Action suit failed, the Deloitte report was entered into the court record, and it is available as a free download here: (part 1 / part 2)

If you read through the report, you'll notice some differences between what the "bank source" told reporters and what was actually in the report.  One difference is obvious and another is more subtle.

The obvious difference:  Not one of the three accusations the source cited from the report are actually in the report.  The three accusations were:

•  Deloitte found that there had been “serious mismarking of the book of natural gas options”.  The report neither says nor implies this.
•  Deloitte’s forensic auditors had never seen such a wide discrepancy in terms of pricing between values marked in BMO’s portfolio of natural gas options and their market value.  The report neither says nor implies this.
• Deloitte indicated that some of the prices used in BMO’s mismarked book of trades were provided by Valhalla, N.Y. based brokerage Optionable. The report neither says nor implies this.
• (use the links above to Deloitte report and see for yourself) 

The subtle difference: Using the name brand recognition of Deloitte as world class forensic auditors, The Bank of Montreal made it appear as if Deloitte had uncovered fraudulent activities as the result of a forensic audit into their trading losses.  The subtle difference is that in this case Deloitte didn't conduct a forensic audit.  Deloitte conducted a process review of the Bank's energy trading and documented deviations between the Bank's actions and prevalent industry practices.  As such, it is my opinion that the Bank acted in bad faith when its source misrepresented the content of the Deloitte report to the Press. 

• In a June 2007 statement to the New York District Attorney, Murray McIntosh (BMO Director Credit Products Market Risk) said: “Deloitte was brought in to look at the valuation practices and to determine if they were market practices. They were not brought in to determine if there was fraud.” 
•  Using a Red /Yellow /Green grading system, Deloitte identified 128 Green areas where the Bank met prevalent industry practices; 35 Yellow areas where the Bank deviated from prevalent industry practices and 6 Red areas where the Bank significantly deviated from prevalent industry practices.   
• Rather than damning Optionable, the Deloitte report credited Optionable's CEO Kevin Cassidy as a contributor to the report.  
• Optionable become permanently unable to operate as a brokerage within days of the Bank source's allegations being reported in the media.
• In summary: The report that the Bank used as the basis for its allegations of fraud against Optionable specifically EXCLUDED any testing for fraud whatsoever.

This Financial Post article BMO Moves on Auditors Report: Source memorializes the information the Bank's source provided the Press. 

Disclosure: I am an investor in Optionable.  This blog does not offer advice on buying or selling any security.

Bank of Montreal Sees Square Peg - Round Hole Mismatch as Fraud

Part 1: Two Sides to Every Story

What happened, the series of events, who sent what to whom, can all be clearly documented.  Still there are two sides to every story when it comes to interpreting those events.  In this case, both sides feel that they are the victim, which I guess given human nature isn’t that unusual.   What’s different in this case is that all we’ve ever heard is the Bank of Montreal’s (the Bank) side of the story, painted, as you might expect, with themselves as victims and us as perpetrators.  This has forced us into the unenviable position of trying to defend ourselves against the Bank’s vision, without ever once getting a turn at the easel of perception, and being allowed to paint the picture as seen through our eyes, in which we are the victim and the Bank is the perpetrator.   That was about to change, and so the Bank hastily shut the case down.

Victim no more
Our chance at the easel was going to come during the depositions of the Bank’s employees.  I was in the courtroom when Judge Cott discussed the possibility of including the Bank’s CEO Bill Downe on the list of Bank employees ordered to testify.  While I’m duly cautious of summarizing the Judge’s remarks, I believe the following statements are accurate:  1) The Judge was not going to order Downe to testify first, before other employees of the Bank.    2)  Bill Downe wrote a letter to the court asking to be completely exempted from having to give testimony.  Judge Cott found Downe’s argument to be insufficient, and kept him on the list of people that he could potentially order to testify.   I didn’t leave the court room with the impression that a Downe deposition order was guaranteed, but I did think it was likely.  Given the Bank’s sudden interest in settling the case, it seems that Bill Downe himself shared my opinion.

Not surprisingly, a few days later the Bank and Optionable negotiated a settlement price so low that Optionable chose to accept it.  While I’m sure it is a relief, this settlement leaves the canvas painted with the Bank as the victim and us as the perpetrator.  There are two sides to every story – but in the courtroom anyway - ours will remain unheard.

Part 2: Telling the Untold Story 

The Bank tried to put a square peg in a round hole.  Then they sued us for fraud when it didn’t fit. 

Square – the Bank’s point of view

The Bank claims that there were defrauded by market tests conducted by Optionable that were based on trader quotes, rather than what they wanted, which was a consensus survey of the marketplace.  You see, the Bank already evaluated its trader’s quotes on a daily basis, so twice a month they wanted to see something else, an evaluation that was ‘independent’ of the Bank’s traders.

What the Bank wanted sounds perfectly reasonable to me.  Fortunately there were a few companies in the market that conducted the type of consensus surveys that the Bank wanted.  One such company was called Totem and from 2003 until 2007 the Bank’s Risk managers asked for, and were denied the use of Totem.  (Irony alert: The Bank’s own records confirm that Kevin Cassidy of Optionable actually played a role in convincing the Bank’s upper management to begin purchasing the Totem surveys the Risk managers had been asking for. )

Round – Our point of view

The Bank employed a Natural Gas trader named David Lee.  Lee’s portfolio was huge, as it contained several million derivatives contracts.  Just to bring in an outside point of reference, in 2001 Warren Buffet admitted to a New York Times reporter that he chose to take a $400 million loss unwinding 23,000 contracts held by a company he acquired rather than trying to assemble a team qualified to manage it.  (In a court filing, Defense attorney Lawrence Gelber estimates that Lee held 7.6 million contracts, which is 330 times more than the amount Warren Buffet deemed too large to manage)

To protect their investment the Bank’s Risk Managers selected a handful of contracts from Lee’s portfolio twice a month which they asked Lee to get market tested.  Lee reviewed the list and assigned prices at which he was willing to either buy or sell each one.  Per the terms of the service agreement the Bank signed with Optionable, brokers at Optionable market tested Lee’s prices by placing orders to trade the contracts the Risk managers had chosen and they entered them at the Bid and Ask prices Lee had indicated.  At the end of the trading day, Optionable sent the Risk managers the results of those orders.  True, Lee provided the prices, but neither he nor Optionable had any control over the market’s response to them. The service Optionable performed was accurate, legal and performed per the terms of the service contract (called Real Marks) that the Banks lawyers had vetted and the Bank's management approved.

In summary:  The Bank wanted consensus surveys such as Totem could provide, (square pegs) but that’s not what they signed up for when they requested reports from Optionable (round holes).  When the Bank finally bought consensus surveys from Totem, they found them to be consistent with the information they received from Optionable.  Could communications between the Bank and Optionable have been better?  Were there perception gaps? Apparently.  In my view, the none of the misunderstandings were the result of fraud.  Here’s what does seem fraudulent to me:  the Bank’s claim that any misunderstandings between themselves and Optionable were the result of a conspiracy against them.  The Bank’s litigation which is based on this theory of conspiracy despite ultimately realizing that both Optionable and Totem were accurately reflecting the Bank portfolio, despite their different methodologies, is what makes the Bank, in my opinion, the perpetrators here.

Disclosure:  I am an investor in Optionable.  This blog does not offer advice on buying or selling any security.  

image source: istockphoto.com / Usage fee paid. 

Bill Downe's Letter to the Court

Defense in the Bank of Montreal v. Optionable case has requested the opportunity to depose (question under oath) the Bank’s CEO, Bill Downe.  On October 23, 2013 Downe filed a letter with the Court (a Declaration) explaining the reasons why he feels the deposition request should be denied. On October 30, 2013, Downe’s letter was discussed at a case management conference with Judge Cott.

While attending the case management conference, I learned that there are two Requirements that must be met in order to depose the CEO of a large company.  They are:  1) The deposition can’t create an undue burden for the company and 2) The CEO alone must know things that others in the company do not.  This is called ‘unique knowledge’. 

In his letter, Downe claims that:
1) a deposition would create an undue burden for his company
2) he has no “unique knowledge” only regurgitated knowledge

Judge Cott has ruled that:
1) Bill Downe’s letter be placed into the public record. (BMO has complied) 
2) Bill Downe specify who the “other people” are he claims spoon-fed him the regurgitated knowledge; and share that list with the Court, the Defense and CME Group.  (to my knowledge, that list has not yet been shared yet)

Here then, in his own words, is Bill Downe’s declaration.

DECLARATION OF WILLIAM A. DOWNE

WILLIAM A. DOWNE, pursuant to 28 U.S.C. § 1746, declares as follows:

1. I submit this declaration to explain facts related to the request for my deposition that has been made by certain defendants in the litigation captioned Bank of Montreal v. Optionable, Inc, et al.,  No. 09-CV-7557 (GBD) (JLC) (the "Litigation"). I have personal knowledge of the facts stated in this declaration.

2. Since March 1, 2007, I have been President and Chief Executive Officer of Bank of Montreal ("BMO"). In this role, I am ultimately responsible for the management and oversight of all of BMO's complex operations. Working with BMO's board of directors and other members of the executive management team, I am responsible for directing the bank's overall strategy.

3. BMO is the eighth largest bank in North America by total assets as at July 31, 2012. It employs approximately 46,000 individuals and serves more than 12 million customers. It has operations around the world and provides a broad range of retail banking, wealth management, and investment banking products and services.

4. My responsibilities as BMO's President and CEO require my full attention. My schedule is exceedingly busy, and I make all efforts to ensure that it is managed in a manner that allows me to maximize the time I spend carrying out my duties and responsibilities for the benefit of BMO's shareholders, employees, customers, and clients.

5) Counsel has advised me that my deposition is being sought in connection with the Litigation. If I am required to testify at a deposition, BMO's operations and affairs will be disrupted, because the time and attention that I will be required to devote to the preparation for, and attendance at, the deposition (including travel from and to my home in Toronto) will distract me significantly from the duties and responsibilities described above. In my role as President and CEO, I am charged with a number of duties and responsibilities that cannot be performed by, or delegated to, other bank employees.

6. I am aware of the Litigation as a result of conversations with counsel. I have been briefed regarding the Litigation at various points, including before it was filed and since then. To the best of my recollection, all of these briefings were either conducted by counsel or conducted by others in the presence of counsel and for the purpose of seeking or receiving legal advice.

7. I am aware that the subject matter of this Litigation was also the subject of investigations by various governmental and regulatory entities. I have been briefed regarding the status of those investigations at various points, and to the best of my recollection, all such briefings were either conducted by counsel or conducted by others in the presence of counsel and for the purpose of seeking or receiving legal advice.

8. Prior to serving as BMO's President and CEO, I was BMO's Chief Operating Officer (from March 2006 until March 1, 2007) and, before that, the CEO of BMO Nesbitt Burns (beginning in 2001). BMO Nesbitt Burns is a fully integrated Canadian investment dealer.

9. The information I have concerning the subject matter of the Litigation including the information that I obtained while President and CEO and in my earlier roles within BMO - was obtained from others, including lawyers, lower-level BMO employees, and individuals outside of the bank.

I declare under penalty of perjury under the laws of the United States of America that the foregoing is true and correct.
Executed on October 23, 2013 in Toronto, Ontario, Canada.

(signed)
William A. Downe

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


Disclosure: The author of this blog is an investor in Optionable.  This blog does not offer advice on buying or selling any security.

The Narrative is Gonna Change

October 30, 2013 – Case Management Conference with Judge Cott

Note: audio recording is not permitted in court.  Contents of this blog are based on my hand written notes.  I am not a lawyer and may have misinterpreted some of the discussion.
I've also used software to translate these notes into French for this blog's French Canadian readers.  Please excuse any grammatical errors in the translation.

Conference Agenda:
1) Should the Defense get to depose Bank of Montreal CEO Bill Downe?
2) How many people should the Defense get to depose?

Agenda Item #1 :  Should the Defense get to depose Bank of Montreal CEO Bill Downe?
 - Requirements to depose a CEO
a) The CEO has to have “unique knowledge” of the situation
b) The deposition can’t create an undue burden to the company

Arguments:
BMO : Why Downe should not be deposed.  (Robert Lack)
* Lack said that Downe wrote a letter to the court claiming he has no unique knowledge.  All he knows was reported to him by “others”.
* Lack said that deposing Downe would be an undue burden on BMO

- Judge Cott acknowledged that the burden of deposing a CEO is a valid concern, however on its own, it can’t prevent a deposition.  So the question is really: Did Downe have "unique knowledge".
- Judge Cott acknowledged a legal precedent suggesting that a CEO should not be the first person deposed at a company.  (Defense was asking that Downe be deposed first)

Defense : Why Downe should be deposed. (and deposed first) (Lawrence Gelber)
* Gelber (Cassidy's lawyer) did the ‘heavy lifting’ of presenting the argument for a Downe deposition to Judge Cott.
* Gelber said that Bill Downe was dead center in the middle of The Bank’s Risk Management activities.
* Gelber said that Bill Downe not only has "unique knowledge", he has unique granular knowledge of the Bank’s energy trading and risk management practices.
* Gelber’s statements were in direct contradiction to Downe’s letter
* Gelber said that Bill Downe was not CEO at the time the trading losses were mounting.  He only became CEO shortly before the trading losses were announced.
* I believe I heard Gelber say that Downe was an integral part of The Bank's risk management since 1999/2000.  His roles included both "Deputy chairman" and Chief Operations Officer (which I imagine would be a very hands-on role)
* Gelber argued that it would be more efficient to depose Downe first, because he truly is the single person at The Bank with the complete picture of what happened.
* Gelber is concerned with the 4/1/14 discovery deadline set by Judge Cott. Gelber wants to prevent The Bank from attempting to run out the clock for a Downe deposition.
* Gelber says until now The Bank has controlled the narrative of what happened and the narrative is about to change. Namely:
** The Bank shifted the blame to Optionable for the purpose of protecting Downe
** Regarding inconveniencing the Bank CEO with a deposition; Gelber brought up the inconvenience this case had had on his client (who is in jail)

Defense : Why Downe should be deposed. (Soloman Klein)
* Klein does not care if Downe if deposed first, sixth, or whatever.  He just wants the Judge to order Downe's deposition.
* Klein asked Judge Cott for a ruling *today* regarding Downe's deposition.

Agenda Item #2: How many people should the Defense get to depose?
* BMO provided a list of over 100 people with knowledge of the case. (there appears to be either a legal precedent or perhaps just an agreement between the parties that 10 depositions per side was going to be the max)
* BMO has arranged for 5 employee depositions.  They are:
** Thomas Merrill – (author of the Merrill report which convinced BMO top management that David Lee was manipulating the skew of his OTM options (out of the money options)
** Eric Tripp – President, BMO Capital Markets (may require 2 days (14 hours)
** Livio Bencich: Managing Director, Financial Products at BMO Capital Markets
** Jeffrey Paulson
** Meredith Othero – from the HR Department
* BMO scheduled these depositions from November through December 16 – at 1 day each.

Judge Cott’s Orders:
* Denied Defense the request order Downe's deposition *today*.
** HOWEVER – he stated that he is “highly inclined” to order a Downe deposition, IF:
*** Defense shows that Downe has unique knowledge
*** Downe's testimony would not be redundant to the testimony of the people deposed before him
* Ordered that the Downe letter be entered into the public record
* Ordered that The Bank tell Defense as well as CMEG exactly who the "other" people are that Downe refers to in his letter.
* Ordered that The Bank push up the timeline for the five scheduled depositions so that they are finished before the end of November.
* Ordered parties to meet during the week of 12/2 and identify the other Bank employees to be deposed and to make a schedule for them.
* Ordered a 12/11 conference - anticipated agenda will be whether or not Defense had made a case for deposing Downe.

Judge Cott’s Observations:
* He is inclined to allow Defense more than 10 depositions
* He cautioned The Bank not to complain about any extra depositions (if they’re hoping to avoid a Downe deposition)
* If he allows it to happen, Judge Cott expects The Bank to have Downe prepared for the deposition by January.

Disclosure: I am an investor in Optionable.  This blog does not offer advice on buying or selling any security.
---------------  En français ------------------------------------

30 OCTOBRE 2013 - Conférence sur la gestion de l'instance avec le juge Cott

deuxième projet - encore un peu rugueux - mais je voulais obtenir ces notes rapidement, quel que soit.
Remarque : l'enregistrement audio n'est pas autorisé en cour. Contenu de ce blog sont basés sur mes notes écrites à la main. Je ne suis pas un avocat et peut avoir mal interprété certains de la discussion.
J'ai aussi utilisé des logiciels de traduire ces notes en français pour ce blog français les lecteurs canadiens. Veuillez excuser les erreurs grammaticales dans la traduction.

Ordre du jour de la Conférence :

1) la défense obtenir de destitution Banque de Montréal PDG Bill Downe?
2) Combien de personnes devraient l'obtenir la défense de destitution?

L'ordre du jour #1 : la défense obtenir de destitution Banque de Montréal PDG Bill Downe?

Exigences de destitution un PDG
a) Le Directeur général a d'avoir des "connaissances uniques" de la situation
b) le dépôt ne peut pas créer un fardeau indu à la société

Arguments : 
BMO: Pourquoi Downe devrait ne pas être renversé. (Robert Lack)

* Lack dit que Downe a écrit une lettre au tribunal en alléguant qu'il n'a aucune connaissance unique. Tout ce qu'il sait lui auraient été rapportés par "autres".
* Lack dit que témoignant Downe serait un fardeau indu sur BMO

- Juge Cott a reconnu que le fardeau de témoignant un PDG est une préoccupation valable. cependant, sur son propre, il ne peut pas empêcher une déposition. La question est donc vraiment : Downe n'ont "connaissances uniques".
- Le juge Cott a reconnu un précédent juridique suggérant qu'un PDG devrait ne pas être la première personne déposé à une société. (La défense demandait que Downe être destitué première)

la défense : Pourquoi Downe devrait être destitué. (Et destitué première) (Lawrence Gelber)
* Gelber (Cassidy de l'avocat) a fait le "levage lourd" de présenter l'argument de Downe dépôts de juge Cott.
* Gelber dit que Bill Downe était mort au centre de gestion des risques de la Banque.
* Gelber dit que Bill Downe a non seulement "connaissances uniques", il a ses propres connaissances granulaire de la Banque de commerce de l'énergie et les pratiques de gestion des risques.
* Gelber de déclarations étaient en contradiction directe avec Downe la lettre
* Gelber a dit que le Bill Downe n'était pas PDG au moment où les pertes ont été de fixation. Il n'est devenu PDG peu avant les pertes ont été annoncés.
* Je crois que j'ai entendu Gelber dire que Downe était partie intégrante de gestion des risques de la Banque depuis 1999/2000. Son rôle comprend à la fois des "vice-président" et chef des opérations (dont j'imagine qu'il doit être très pratique de rôle)
* Gelber soutient qu'il serait plus efficace de destitution Downe parce que, premièrement, il est véritablement la seule personne à la banque avec l'image complète de ce qui s'est passé.
* Gelber est concerné avec le 4/1/14 découverte délai fixé par le juge Cott. Gelber veut empêcher que la Banque essaie de s'exécuter à l'heure pour un dépôt Downe.
* Gelber dit jusqu'à présent, la Banque a contrôlé le récit de ce qui s'est passé, et le récit est sur le point de changer. À savoir :
** La Banque décalé le blâme sur Optionable dans le but de protéger Downe
** concernant incommoder la banque PDG d'une déposition; Gelber a soulevé le désagrément que cette affaire a eu sur son client (qui est en prison)

la défense : Pourquoi Downe devrait être destitué. (Soloman Klein)
* Klein ne s'occupe pas si Downe si destitué premier, sixième, ou quoi que ce soit d'autre. Il veut simplement au juge d'ordonner Downe la déposition.
* Klein a demandé à la juge Cott pour une décision * aujourd'hui * concernant Downe la déposition.

L'ordre du jour #2 : Combien de personnes devraient l'obtenir la défense de destitution?
* BMO a fourni une liste de plus de 100 personnes avec la connaissance de l'affaire. (Il semble que ce soit un précédent juridique ou peut-être seulement un accord entre les parties que 10 dépositions par côté allait être le max)
* BMO a organisé pour 5 employé les dépositions. Ils sont :
** Thomas Merrill - (auteur du rapport Merrill qui a convaincu haut BMO gestion que David Lee a manipulé l'inclinaison de son OTM options (de l'argent options)
** Eric Tripp - Président, BMO Marchés des capitaux (peut nécessiter 2 jours (14 heures)
** Livio Bencich: Directeur général, produits financiers, BMO Marchés des Capitaux
** Jeffrey Paulson
** Meredith Othero - du département des RH
* BMO planifié ces dépositions de novembre à décembre 16 - 1 jour chacun.

Cott juge les ordres :
* refuser la défense demande l'ordre Downe de dépôts * aujourd'hui * .
** TOUTEFOIS - il a déclaré qu'il est "très tendance" à l'ordre un Downe dépôts, SI :
*** La Défense montre que Downe a savoir unique
*** Downe témoignage proposé ne serait pas superflu de le témoignage du peuple déchu devant lui

* a ordonné que le Downe lettre être entré dans le dossier public
* Ordonna que la banque dire défense ainsi que CMEG exactement qui les "autres" les gens sont que Downe se réfère dans sa lettre.
* a ordonné que la Banque pousser vers le haut la chronologie du prévu cinq dépôts afin qu'ils soient terminés avant la fin de novembre.
* Commandés parties à se réunir au cours de la semaine du 12/2 et d'identifier les autres employés de la banque pour être destitué, de faire un planning pour eux.
* Commandé le 12/11 conférence - ordre du jour prévu sera de savoir si ou non la défense avait fait un cas de destitution Downe.

Cott juge les Observations :
* Il est enclin à autoriser la défense plus de 10 dépôts
* Il a conseillé à la Banque, qui n'est pas à se plaindre de tout extra dépositions ( s'ils sont en espérant éviter un Downe dépôts)
* si il permet cela, juge Cott attend de la Banque ont Downe préparé pour les dépôts en janvier.

La divulgation : je suis un investisseur dans Optionable. Ce blog n'offre pas de conseils sur l'achat ou la vente de la sécurité.

JP Morgan's Jamie Dimon's London Whale Fate Shows That Bill Downe's "Blame Optionable" Campaign Was Unnecessary

Imagine Bank of Montreal's (The Bank) Bill Downe's surprise at learning the fate of JP Morgan's Jamie Dimon in the wake of the London Whale losses.  Much like Dimon, Downe was faced with having to explain losses from over-sized bets in illiquid markets to regulators and investors. Sure, both men blamed their own traders and Risk Managers, but Downe took an additional step.  Downe sponsored a  campaign, code named "Blame Optionable" which fraudulently* looped in and destroyed the brokerage firm Optionable, of which I am an investor.

 I'd like to share the following story with you from The New Yorker's website:  Will Anyone Hold Jamie Dimon Responsible for the London Whale Scandal?   While the article isn't intended to be supportive of Dimon, it shows that Downe could have survived at BMO without destroying Optionable.

Instead The Bank is still in court 6+ years later attempting to squelch Downe's emails from reaching the public.  Downe and The Bank could have been miles past this by now; Optionable, the company I am invested in, could still be a profitable brokerage, and their reporting service "Real Marks" could still be improving visibility in these lucrative yet highly illiquid markets.

 While BMO has been successful to date selling their version of the story, the truth is known and documented.  More people know the truth than the Bank can possibly squelch, and this all could have been avoided if Downe had just taken the heat upfront and moved on.

Disclosure: I am an investor in Optionable.  This blog does not offer advice on buying or selling any security.

-------------------------------------------------------------------------------------------------------------------
footnote:
* Why do I say that the "Blame Optionable" campaign FRAUDULENTLY looped Optionable in?
The Blame Optionable campaign claimed that there was a secret agreement between The Bank's Trader David Lee and Optionable's Kevin Cassidy.  Under this theory Lee would secretly provide price points to Cassidy and Cassidy would secretly report them back to The Bank.  REALITY: It is documented that The Bank indeed wanted and requested the reports to be independent of their own traders, including Lee.  That part is true.  It is also documented that: a) The Bank's Risk Managers asked Lee to send quotes to Cassidy  b) Kevin Cassidy met with The Bank's Upper Management and told them in person that Lee's input was included and that the reports could not be created without Lee's input.   These two facts when combined prove that The Bank knowingly made fraudulent statements when they claimed that Lee and Cassidy conspired to keep knowledge of Lee's participation away from them.

** Photo Caption: The London Whale Swam in Illiquid Markets

Optionable Press Release links Bank CEO to Fraud

I am reposting the Press Release that appeared Optionable's web site on 9/30/13 in its entirety, without edits or comments of my own. Optionable removed this press release on 10/2/13 per court order.
===================================================================

Bank of Montreal CEO Downe Linked to Fraud and Cover Up
September 30, 2013
-
New evidence obtained by Optionable links current Bank of Montreal CEO Bill Downe to a cover up in relation to trading losses in natural gas positions incurred by the bank in early 2007.

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

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

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

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