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. 

Lee Walks - No Remorse for Optionable

After sentencing, David Lee, his wife and a member of their legal team walk away. 

03/30/15 - New York

David Lee walked away today from a mandatory prison sentence.

In his statement to Judge Loretta A. Preska, Lee expressed remorse for the trust he betrayed that The Bank of Montreal and his coworkers had extended him in good faith.  Lee's expression of remorse however excluded the people he worked with outside the Bank whose trust he also betrayed.  

Lee was granted leniency primarily because of the cooperation he gave authorities and government agencies in understanding the complexities of his crime.

A second factor in the leniency shown to Lee was the willingness he expressed to testify against Kevin Cassidy, of the brokerage firm Optionable. Even though Federal Prosecutor AUSA Michael Levy described Lee as being "more culpable" than Cassidy, the Prosecutor suggested to the Court that Lee's willingness to testify was a motivating factor in Cassidy's decision to accept a plea deal.   I disagree with the Prosecutor's valuation of Lee's potential testimony and I believe I have good reason.  I've read Kevin Cassidy's sworn deposition testimony. [Inside joke:  I believe the value of Lee's testimony has been "mismarked" - ha ha] 

During sentencing Judge Preska asked if there were any victims of Mr. Lee's actions who wished to make a statement.  I remained silent - and that silence is going to haunt me. 

Here is the statement I wish I made: 

Mr. Lee, I have followed this case for 8 years.  I have been hurt financially by the actions you have admitted to.  Your Defense lawyer, as well as the Prosecutor and even a representative of the CFTC have all praised your willingness to be completely honest about the details of your crime while this Court was determining your sentence. 

Mr. Lee, I would like to read you a passage from Kevin Cassidy's sworn deposition testimony and then ask you to answer one question with the same spirit of honesty for which you are being credited today. 

(from page 599-600 of Cassidy's deposition)
MS. ROBIN: Prior to September 2006, did anyone from BMO other than David Lee forward to you or anyone else at Optionable natural gas pricing information at month-end for this review?
MR. WALFISH: Objection.
MR. CASSIDY: No, not that I can recall.
MS. ROBIN: Did Mr. Lee ever tell you that he was mismarking his book of natural gas options?
MR. CASSIDY: No.
MS. ROBIN: Did Mr. Lee ever specifically tell you that he was defrauding BMO in any way?
MR. CASSIDY: No.
MS. ROBIN: To your knowledge, did Mr. Lee ever tell Mr. O'Connor that Mr. Lee was mismarking his book of natural gas options?
MR. CASSIDY: No.
MS. ROBIN: To your knowledge, did Mr. Lee ever tell Mr. O'Connor that Mr. Lee was defrauding BMO in any way?
MR. CASSIDY: No.

Mr. Lee, you have lead your former employer, The Bank of Montreal, as well as the media, prosecutors and this court all to believe that Mr. Cassidy participated in a conspiracy with you.  Based on Mr. Cassidy's sworn deposition testimony, I believe he did not. Mr. Cassidy served a prison sentence based on your accusations, while here today you escape that fate yourself. Based on your accusations, Mr. Cassidy's company, Optionable's lost the trust of corporate traders, (your peers) which was their life blood.  Your accusations permanently shuttered Optionable's doors, meanwhile, your ex-employer continues to lackadaisically gamble in the thin high risk markets you dominated for them.  

Here then is my one question for you.  Please tell me if Mr. Cassidy's testimony is true.  If you are willing to say, before God and this Court that Mr. Cassidy's sworn testimony is false - then I offer you my apology for interrupting your sentencing hearing today.  God speed to you, Sir.  If however, you know in your heart that Mr. Cassidy's sworn testimony is true, then I implore you to live up to the condition that Judge Preska included in her sentencing on you: "Mr. Lee, hence forth: Do the right thing."  To me, doing the right thing would be admitting that your crime was a "conspiracy of one" in which the motive for your actions was hidden from all involved.  Admit that you alone betrayed the trust your employer, coworkers and outside vendors granted you in good faith. 


Final Note: (added 4/3/15) I have offered David Lee, through his lawyer, the opportunity to respond to this blog post.  If he chooses to accept this invitation, I will print his reply unedited, in it's entirety. 

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

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's Impossible Mission

In stories the "Mission: Impossible" teams all seem to accept that no one is going to stand up for them if their missions fail.  Chances are Bank of Montreal trader David Lee and his boss Robert Moore had similar expectations when Lee's multi-year winning streak had stalled and he actually started racking up losses.  After The Bank disavowed the duo, they were discreetly processed through the legal system as cooperating witnesses and jettisoned to safety. 

Things didn't go as smoothly for the folks at Optionable. Optionable's CEO Kevin Cassidy had an unrelated previous criminal record. Cassidy's past was publicly available old news which wasn't required to be disclosed in Optionable's SEC filings. Revealing Cassidy's public knowledge "secret" however provided The Bank with an opportunity to portray Lee's trading losses as a conspiracy between a rogue trader and his ex-con broker, rather than The Bank's failure to manage a known business risk associated with the type of trading they were heavily involved in.

Even though the Impossible Mission took place in 2007, it may still be too soon to tell if the Bank has gotten away with it.  Oh sure, there's me, an Optionable investor who calls himself Trader Elvis.  I've been blogging about this one case for over 6 years. I'm easy for the Bank to dismiss. There is however another player on the scene.  His name is Mark Nordlicht and he is the current majority shareholder of Optionable.  Nordlicht knows what really happened and has the resources to expose The Bank's skullduggery in a court of law.  Stay tuned.......

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

Bank of Montreal to Optionable: Caveat Emptor No More!

Legally mandated product warnings:  some people claim their only purpose is to save us from our own stupidity.  The warnings seem so obvious that anybody who claims to need to be told these things can come off looking pretty foolish…. or greedy when they sue for damages.

The McDonald’s Hot Coffee lawsuit is often credited as being the genesis of these 'unnecessary' product warnings.  You may wonder who needs to be cautioned that a cup of coffee is hot.  However as someone who drank McDonald’s coffee in the hot old days, I can tell you that sometimes these 'unnecessary' product warnings really do make sense.  McDonald’s coffee wasn’t just served hot, it was served so hot that the seemingly 'foolish' or 'greedy' coffee spill victim needed reconstructive skin grafts after a cup of McDonald's coffee landed in their lap.  McDonald's fought the claim and lost, and a new era of product warnings was born.  Caveat Emptor (Let the buyer beware) No More! (and sometimes - that's not such a bad thing)

You may be wondering how the warning on a coffee cup relates to the Bank of Montreal (the Bank) and Optionable.  Listen.  The Bank traded heavily in otherwise thinly traded, over-the-counter speculative markets.  Despite the amount of money involved, there was no readily available published market quotes for these markets, mostly because there were so few traders in them. For years, the Bank was successful in these tiny markets because they employed hyper competitive and ferociously aggressive traders.  The Bank's traders were tactical geniuses capable of playing a matrix of counter-intuitive interwoven strategies simultaneously.  Sure, there were hedge funds that lived and died this way, but the Bank was supposedly a conservative customer driven institution and here they had one of their traders (David Lee) walking a frayed tight rope over the Grand Canyon…  daily ….. blind folded... while juggling flaming chain saws….. and….. and….. and…. he fell.

After David Lee lost a lot of money (0.64 billion) doing the job the Bank employed him to do, the Bank's strategy was to play dumb about the risks Lee had been taking and their lax risk management of him. To date the Bank has been successful in blaming Optionable, a company I am invested in, for the flaws in the Bank's undocumented risk management reporting workflow.  The reporting workflow was dependent on Lee's participation and the Bank's Risk Management division has admitted (in interviews with the FBI) that they instructed Lee to send quotes to Optionable, even though they knew that the Bank's upper management wanted a process that was independent of the Bank's own traders.  Even though Optionable's Kevin Cassidy (rather than the Bank's Risk Managers) explained to the Bank's upper management that Optionable's reports included input from David Lee, (who Cassidy told and when he told them is all documented) he still accepted a plea bargain when threatened with spending the rest of his life in jail, (if found guilty at trial). In his plea deal, Cassidy admitted that he knew the Bank's upper management wanted the reports to be independent of David Lee and that they were not.  If you're wondering what part of Cassidy's admission was the admission of a crime, then you and I are on the same page.  As near as I've been able to figure out, the 'crime' was that the "product warning" Cassidy had delivered in person to the Bank's managers was not repeated strongly enough in the reports themselves. 

Given Cassidy's plea, he and Optionable bear some responsibility for the Bank’s cleverly positioned, self-proclaimed "stupidity".  But how much responsibility is fair for Cassidy and Optionable to bear given the Bank's market dominance, best-of-breed talent and 20-plus years of experience in this game? 

In the criminal case against him, the court is holding Kevin Cassidy personally responsible for: a) 100% of the salary and bonuses paid to the Bank’s star trader, David Lee over an 8 month period (3.6 million dollars) and b) 100% of the money the Bank paid Optionable for brokerage services over the same 8 months (5 million).  

Wait.  WHAT !!!???

How does that make any sense?  3.6 million over an 8 month period is about $22,500 per day.  (3.6 M / 160 trading days) Kevin Cassidy certainly didn’t get a penny of Lee's 'rock star' salary, so if anybody is going to be asked to pay THAT money back – why don’t they talk to the person who received it?  (see Note #2 below)

OK, so we can all agree that the first number is bogus, but what about the money the Bank paid to Optionable for brokerage services?  Surely Cassidy has to be on the hook for at least a percentage of that, right?  Well……maybe, maybe not.  There might have been a case for that if there had been anything faulty or inadequate about the brokerage services Optionable provided…. but there wasn’t.  


Y'know... when this story first broke there were accusations that Optionable had processed trades at imaginary prices and pocketed the difference.  However those accusations quickly vanished, and everyone from the SEC, the CFTC, the FBI and the IRS, (and yes, even the Bank itself) everyone, EVERYONE… now admits that Optionable serviced the Bank’s trades 100% legitimately.  100% legitimate trades might not sound like anything special at first, since most people expect 100% legitimate transactions from their brokerages.  You may wonder where I get off making providing legitimate trades sound like some kind of heroism.  Well, I’d like to ask for a little slack here and ask you to keep in mind that at the time this story broke, Optionable was being kicked around like a pack of corporate thieves.  For them to come out the other side with 100% clean financials is pretty damn impressive, at least it is to me.  So why.... why in the world the court feels that Cassidy should repay those brokerage fees when EVERYONE (including the Bank) admits that the trades were 100% legitimate is beyond my limited comprehension…. but hey…. I’m just some nutcase who calls himself Trader Elvis, and nobody asked me what a reasonable restitution amount might be. 

Really?  You want to know what I think the restitution amount should be?  Thanks for asking.  I will admit that Cassidy owes the Bank some amount of restitution for not including a stronger "idiot-proof" product warning in his reports.  I'm not completely sure what a fair settlement would be - but around $100,000 sounds generous and yet fair to me.  Another approach would be for Cassidy to only repay the money the Bank paid for the 'product warning deficient' reports.  (That's a little inside joke - because although the Bank paid Optionable about $31,250 daily for brokerage services (5M / 160 trading days), the Bank never paid Optionable a penny of the $2,500 per month that they agreed to pay for the reports - so restitution of that amount would be Zero. haha)  In the meantime, I think the Bank owes Cassidy and Optionable restitution for the willful destruction of Optionable's existing business resulting from the "Blame Optionable" campaign and additional restitution for the potential revenue that Optionable would have enjoyed through its partnership with NYMEX.  Mark Nordlicht is leading that legal battle and has placed the combined value of those losses at 1 billion dollars.  (500 million each from the Bank and from NYMEX)  

Respectfully submitted for your review:
Trader Elvis: 

Note #1: Kevin Cassidy is appealing the restitution amount.

Note #2: added 7/17/13: On February 12, 2009 David Lee paid his criminal case judgement of $830,000 which according the the Order of Restitution represented 'all proceeds traceable to the commission of the offenses alleged'. Since Lee has already made this payment, it makes me wonder why Cassidy is also being asked to pay restitution of Lee's income, and why Cassidy is being asked for 3.6 million when 0.83 million was considered full restitution, by the person whose trading actually lost the Bank's money. 


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

Bank of Montreal Silent on "What was Supposed to Happen?

“What happened?” and “What was supposed to have happened?”  Those are questions both Judge Griesa (in the criminal case) and Judge Daniels (in the Civil cases) have expressed and I share their curiosity.  Now you might think that I’m quibbling, but the Bank of Montreal (The Bank) told investors back in 2007 that they were conducting a “full external review” into “What Happened” and my impression after reading the transcripts of Ed O’Connor’s deposition is that The Bank didn’t get around to actually asking “What Happened” until October 2012.  (Time elapsed from 5/8/07 to 10/17/12 is 1,989 days…. Hope you weren’t holding your breath waiting for The Bank to complete its review into “What Happened”) 

I wasn’t born a nit-picking ‘process guy’, but if you've read this blog for a while, you might have noticed that I have become one.  Banks, by the way, are Process Driven Institutions.  Most of the case studies I've read in Process related text books were all about banking.  I'm pretty sure that the average Process person at a bank could plot Process circles around a mostly intuitive, late bloomer Process guy like me.  OK, so why am I telling you this? 

Here’s why.  The Bank has never produced any type of documents showing “What was Supposed to Happen”  They cry: “Our employee defrauded us – and your guy helped him”.  Well, excuse me Mr. Large Canadian Bank , but Boo Fucking Hoo!!! Show me the Process Flow of “What was Supposed to Happen” and THEN we can sit down and honestly assess if “What Happened” violated your process or not.  I mean – I hope my point is getting across here – because for The Bank to imply that there isn’t a painstakingly detailed process flow diagram for the management of billions of dollars in “the riskiest investment in town” (the same stuff that Amaranth Advisors and Mother Rock both blew up on) simply HAS TO BE a lie.  And if for some reason it isn’t a lie – then Holy Mother of God - - why hasn’t this cowboy outfit been shut down already? 

While The Bank’s lawyer Anne Beaumont and I are on different sides of this dispute, I do respect her interrogation of Optionable’s Ed O’Connor and think she did a good job of drawing out of him “What Happened”.  My observation from reading the transcript however is that much of what Mr. O’Connor told Ms. Beaumont about “What Happened” came as news to her.  Despite 5-plus years of running a “full external review” it seems that no one from The Bank ever checked in with anyone at Optionable about “What Happened” before handing the task over to Ms. Beaumont.  To illustrate my point, while I can say that Ms. Beaumont came to the deposition armed with plenty of documents intending to show how Mr. O’Connor was liable for the actions taken by his company Optionable, she didn’t have a single one that showed how O’Connor’s version of “What Happened” violated ANYTHING in The Bank’s process for “What was Supposed to Have Happened”.  As an Optionable shareholder, I think that is a solid victory for us.

That’s the end of my rant.  If you’re still reading, here are a few other highlights that I pulled out of O’Connor’s deposition testimony.  

• O’Connor identified not 1 but 4 different reporting processes that Optionable followed between 2003 and 2007.

• All of Optionable’s processes were based on instructions received from The Bank. (specifically from The Bank’s trader David Lee)  At no time did anyone from The Bank ever contact Optionable with instructions that contradicted Lee’s instructions or indicated in any way to Optionable that Lee’s instructions were anything other than The Bank’s authorized instructions.

• All of the Bid/Ask quotes that Optionable received originated from The Bank’s trader David Lee. Allow me to repeat that - All of them. No one from The Bank ever sent Optionable Bid/Ask quotes to review that were ‘independent’ of Lee.  (Having the quotes be ‘independent” of Lee was supposedly an important point for The Bank – so this detail is confusing to me) 

• The Bank never paid Optionable for the reports, even though preparing them took a considerable amount of time away from Optionable’s revenue generating activities. (as the reader of this blog, you may not care about this point, but as an investor in Optionable, I’m like….. you’re telling me that The Bank destroyed my investment over these stupid reports and my company never even got paid for the time spent preparing them!?!  I guess that’s not a legally binding argument, but it is adding insult to injury.

• When the Back Offices of other clients didn’t agree with numbers O’Connor sent to them, those Back Offices called up O’Connor to complain.  According to O’Connor, no one from The Bank’s Back Office ever made such a call.  This tells me that the numbers in the reports were somewhat subjective, and that over time reasonable people would at least occasionally disagree about them. For reasons I do not understand, The Bank’s Back Office never objected to any of the numbers.  Why?

• David Lee’s portfolio at The Bank was large and complex.  It included financial instruments that David Lee did not trade through Optionable. In preparing its reports, Optionable did not comment on Lee’s Bid/Ask quotes on financial instruments that the firm did not trade.  Process-wise this detail opens a potential communications gap.  If The Bank’s Back Office thought Optionable reviewed Lee’s entire set of quotes, but the process was only to review quotes Optionable traded (and leave the others unchanged) then that goes a long way towards explaining the disconnect between what The Bank “Thought was Happening” and Optionable’s version of “What Happened” . (See my other blog post “6 years later – what if it all was a simple misunderstanding?” here.) 

Closing thoughts:  As an Optionable shareholder it is my opinion that The Bank knew that they were bluffing when they launched their 2007 “Blame Optionable” campaign and to this day The Bank is unable to answer “What was Supposed to Have Happened” 

Resources:
O'Connor'sDeposition File #1
O'Connor'sDeposition File #2
Blog post I wrote about Kevin Cassidy's deposition

Disclosure: I am an Optionable shareholder.  This blog does not offer advice regarding buying or selling any security.  

The Bank of Montreal and Optionable

6 years later – what if it all was a simple misunderstanding?

 

Duck or Rabbit?

Back in 2007 when the Bank of Montreal alleged that reports from Optionable were linked to the Bank’s trading losses, they set off a long and protracted series of litigation, which in my opinion as an Optionable shareholder, sent an innocent man to jail (on a plea bargain) and forced an up and coming brokerage firm (Optionable) out of business.
 
Despite all the litigation, what if a lot of this was triggered by a simple misunderstanding?

In his 2012 deposition testimony, Optionable’s Ed O’Connor stated that when preparing the reports that BMO believes defrauded them, the process was to only review financial instruments (products) on David Lee's list that Optionable actually brokered on a regular basis. The products Optionable didn't broker - they left alone - and returned those quotes to BMO unchanged. To my knowledge, this detail about the process has never been made public before, and for me anyway, it changes the way I'm looking at the overall picture of what happened.  

Reading through O'Connor's deposition testimony, it seems to me that brokers from Optionable performed their review in a manner consistent with BMO’s expectations (including changing Lee's quotes when variations existed)  BUT – they only reviewed the products on the list that they actually brokered.  This makes sense because those were the products that Optionable had a basis from which to provide the Bank with a professional review.  As for the products Optionable didn't broker, O’Connor said it was his belief at the time that BMO had other sources looking at those quotes.

Based on O'Connor's testimony, I have a theory about what happened.  My theory is that for reasons we do not fully understand, (most likely including poor process definition and a general lack of communication) the people in the Bank’s Back Office assumed that Optionable was reviewing David Lee’s entire list rather than just the products they brokered.

If this is what happened, it would explain why the Bank feels justified in accusing Optionable of “regurgitating” and “U-Turning” David Lee’s Bid/Ask quotes, while Optionable insists to this day that they provided BMO with accurate reports.  I have a hunch that you will find a near perfect match between the quotes the Bank claims Optionable “regurgitated" and "U-Turned" and the quotes Optionable sent back to BMO unchanged because those quotes were for products that Optionable did not broker.

My theory also reveals an opportunity through which David Lee may well have mismarked his Bid/Ask quotes on products he knew Optionable did not broker and felt some confidence that they would pass through Optionable’s review without being challenged.

My theory does not prove that David Lee mismarked quotes, but it does show a path through which he could have. It also shows how he could have pulled off such a scheme without any consent or cooperation from Optionable.

It saddens me to think that I may actually be right, when I consider all the time lost and opportunity squandered had only a neutral party, such as NYMEX (now part of The CME Group) stepped in as a mediator to clear up the miscommunications.  I strongly believe that all of the people at Optionable and most of the people at BMO were honest people trying to do their jobs honestly and ethically.  It's a shame if a simple misunderstanding derailed them.

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

In For a Penny

Updated 10/12/12

"In for a penny, in for a pound" justice encourages us to believe that in large financial disasters if we can find someone to blame for a tiny part of the problem, then we are justified in blaming them for the whole mess. It's an interesting flip on the Occupy Wall Street claim that large banks only focus on the wealthiest 1% and ignore the rest of us.  In this case, the Bank of Montreal (The Bank) focused its shareholder's and Federal Regulator's attention on the 1% of blame The Bank ascribed to Optionable, and managed to blind them all to the fact that huge trading losses come with the territory given the risky and exotic trading The Bank engaged in.

A matter of Independence 
Divisions within the Bank of Montreal had a long standing disagreement about whether or not the bi-monthly Bid/Ask summary reports they collected should be 'independent' of Bid/Ask quotes from their own traders. The Bank's Market Risk Division wanted 'independent' quotes and The Bank's Commodities Group did not.

Kevin Cassidy's company Optionable collected Bid/Ask quotes anonymously and hence they could not (and did not) promise The Bank's Market Risk that the reports they sent were 'independent' of The Bank's own traders.  This didn't sit well with The Bank's Market Risk Division, and there were a fair amount of discussions and meetings (both internally and with Optionable) about it.  At the end of the day, Cassidy told The Bank's Market Risk that since Optionable could not provide 'independent' reports that The Bank's best insurance was to use reports from multiple brokerages, in addition to the industry standard reporting agencies.  (Advice that The Bank eventually followed)

The Bank Bet Huge in Exclusive Tiny Markets
When The Bank's star trader, David Lee, who had made hundreds of millions of dollars in profit for The Bank in exclusive, exotic and risky markets (where angels fear to trade) started losing money, industry analysts began criticizing The Bank's risky trading.  The Bank needed someone to blame.  With the help of their public relations/crisis management team they found Kevin Cassidy, who had an unrelated criminal conviction 15 years earlier.  Deliberately ignoring the fact that Cassidy had dealt honestly and ethically with The Bank for years, The Bank pretended that this ex-con had tricked them 'somehow' with his reports that were not 'independent' of The Bank's money losing trader David Lee.  (I put the word 'somehow' in quotes because The Bank has never even attempted to provide any type of explanation showing a correlation between Cassidy's reports and David Lee's trading losses.)

The Bank's scheme worked.  The Bank's scheme put Optionable out of business and placed Kevin Cassidy under Federal Criminal Indictment.  Cassidy struck a deal with Federal Prosecutors and agreed to plead guilty to failing to put a disclosure statement into the reports he sent to The Bank's Market Risk division alerting them to what they already knew, that the reports were not 'independent' of the Bank's own traders.     

So, was Cassidy ever really "In for a Penny"?
If you subscribe to "in for a penny, in for a pound' justice, where 1% of the guilt gets you 100% of the blame, here's the question I want you to ask yourself.  Was Kevin Cassidy ever 'in for a penny'? All we need to debunk The Bank's Penny theory is show that The Bank knew the reports Cassidy sent were not collected Independently of The Bank's own traders.  Well - Cassidy provided exactly this proof under oath during his deposition.  Cassidy provided the names and dates of The Bank's officers to whom he specifically explained the non-independent nature of his reports.  (see who he told and when in my previous blog)

So there it is: Optionable's business was destroyed, Cassidy is going to jail, and yet The Bank's claim that Cassidy was somehow 'in for a penny' doesn't hold up.
 
Post Script: Kevin Cassidy is scheduled to begin serving a 30 month sentence in a New York State Federal prison on October 26, 2012. 

Standard disclaimer:  I am an investor in Kevin Cassidy's former company Optionable.  This blog does not offer advice regarding buying or selling any security.

Bank of Montreal Bullying Target Has Spoken

"Jeremy" Pearl Jam

While I was reading the transcript from Kevin Cassidy's deposition, the Pearl Jam song “Jeremy” kept running through my mind.  It's not really fair to compare Kevin Cassidy to the tortured youth in the song, yet one comparison holds up. Both victims were bullied in silence, and things have changed now that each of them has spoken.

What does it mean?  What did Cassidy say?

What it means is:  By bullying Kevin Cassidy the bank bought themselves 5 years of Cassidy's silence. In that time, BMO's share price has recovered from its scandalous trading losses, but Kevin Cassidy's company Optionable has not.  Cassidy has spoken the truth, but like 'Jeremy', he is the one paying the price.

What he said is: in direct contrast to BMO's claim that they were defrauded because they did not know that their own trader David Lee contributed quotes to the Bid/Ask summary reports that Cassidy sent to BMO's Risk Management Group, BMO knew that Lee's quotes were included. How do we know for sure that they knew this?  We know this because they were told by David Lee himself, Kevin Cassidy himself and a few other people in between. (details of who was told and when are below*)

Conclusion:  BMO is free to claim that they WANTED Lee's quotes excluded from Cassidy's Bid/Ask summary reports, but they are not free to claim that they didn't know that Lee's quotes were included. Why? Because they were told, by multiple people, including both David Lee and Kevin Cassidy themselves that Lee's quotes were included. (Hence it is impossible for BMO to have been 'defrauded' by Cassidy's inclusion of Lee's quotes.  BMO knew Lee's quotes were included)  

After five years of wondering if Cassidy had a role in defrauding BMO, I am now personally satisfied that he did not. However, I encourage you not to take my word for it, but rather read what Cassidy said for yourself: Transcripts from Cassidy’s deposition.

* The Details (taken from Cassidy's deposition)

1) The BMO trader who accumulated $640,000,000 (US) in trading losses, (David Lee) told BMO's Risk Management Group that he was providing quotes to Optionable. (Hence it is impossible for BMO to have been 'defrauded' by Cassidy's inclusion of Lee's quotes.  BMO knew Lee's quotes were included)

2) Cassidy disclosed the following to BMO:

a. Quotes that Optionable collected from traders were not collected independently of the bank's traders. (Hence it is impossible for BMO to have been 'defrauded' by Cassidy's inclusion of Lee's quotes.  BMO knew Lee's quotes were included) 

b. Cassidy and Stephen Laker told BMO Risk Manager Jeff Wang that quotes received from Optionable originated from David Lee. (Hence it is impossible for BMO to have been 'defrauded' by Cassidy's inclusion of Lee's quotes.  BMO knew Lee's quotes were included)

c. Cassidy told BMO’s Anne Fiddes, (BMO's Director of Valuation Product Control), that he could not properly prepare the reports without using quotes from David Lee. (Hence it is impossible for BMO to have been 'defrauded' by Cassidy's inclusion of Lee's quotes.  BMO knew Lee's quotes were included)

d. Cassidy told BMO that reports from Optionable should be only be reviewed in concert with reports from other sources. Cassidy recommended using 3 to 4 sources to BMO Risk Manager Murray McIntosh.  (Hence it is impossible for BMO to have been 'defrauded' by Cassidy's inclusion of Lee's quotes.  BMO knew Lee's quotes were included)

Note: none of Cassidy's statements attempted to deflect the responsibility he accepted in his plea bargain.  Cassidy admitted that given BMO's internal debate over whether to include or exclude Lee's quotes it would have been prudent of him to specifically disclose Lee's participation in each report he sent. I think we can all agree that would have been prudent.  By the way, please note my disclosure below that I am an Optionable shareholder.    


Disclosure:  I am an investor in Optionable, the company I am claiming BMO bullied.  This blog does not offer advice regarding buying or selling any specific security.

See this story on the CNN self publishing site (iReport) here:

Bank of Montreal Leaks, Ex-Con Plugged.

* 5/31/12 Conference before Judge Daniels
* Plaintiffs: Bank of Montreal, CMEG / NYMEX, CFTC and SEC
* Represented Defendants: Mark Nordlicht, Optionable, Edward O'Connor and Kevin Cassidy
* Location: Daniel Patrick Moynihan Courthouse 500 Pearl Street New York, NY

* Standard disclaimer: I am an Optionable shareholder and I attended the May 31 conference.  I took notes to the best of my ability.  These notes are not investment advice. These notes contain some personal observations and opinions.  Please do not send me to jail for 30 months for failing to disclose things you already know.

Part One: An Analogy

During the conference, several people tried but only partially succeeded in coming up with analogies that illustrated the actions Kevin Cassidy took in 2007 which brought him to a plea bargain in 2011. One defense lawyer compared Cassidy's actions to talking on a cell phone while driving.  Judge Daniels however chose to only see Cassidy's actions as a felony.  When the Judge wanted to know if Cassidy's actions were minor or serious, he asked to be told the length of Cassidy's prison sentence. Neither of these ways of evaluating Cassidy's actions seems complete. I am fairly confident that when Kevin Cassidy received quotes from David Lee, he wasn't comparing his actions to talking on a cell phone while driving, or much less wondering if his actions might one day be considered a felony.  He probably wasn't comparing himself to a hole in a granite fountain either, but we'll get to that.

Outside the courthouse I found a sculpture (pictured above) that is actually a self enclosed fountain. You can't see the water unless you look through one of the fountain's two holes.  If you stand close however, you can feel the water racing through it. Slowly, it began to occur to me that I just might have stumbled upon a viable analogy not just for Kevin Cassidy's actions, but for the whole mess that began when the Bank of Montreal needed a scapegoat to blame for its trading losses. I've been tinkering with this analogy for a few days - please read it through and see if works for you.

* The mysterious self enclosed fountain represents the Bank of Montreal (BMO)
* The water swirling around inside the fountain represents billions and billions of dollars.
* The large hole in the fountain represents ex-con Kevin Cassidy (of Optionable) receiving Bid and Ask quotes from David Lee and not specifically disclosing Lee's participation in the market survey reports later sent to BMO's Risk Management. (also known as "the felony")
* The small hole in the fountain represents Joseph Saab (of MF Global) receiving Bid and Ask quotes from David Lee and not specifically disclosing Lee's participation in the market survey reports later sent to BMO's Risk Management. (curiously, not deemed a criminal offense)

Now..... if BMO discovered the fountain was losing water they might call in a plumber.  In this analogy the auditing firm of Deloitte and Touche represents the plumber.  Let's say that the plumber identified several problems with the fountain's plumbing infrastructure as well as a few structural issues with the frame of the fountain itself.  Included in the list of structural issues were the two holes: Optionable and MFG.

OK, so now BMO has the list of its plumber's recommendations, but implementing the recommendations would take time, time that BMO did not have. BMO's fountain was losing water, and it was getting near time to meet with shareholders.  BMO hired a public relations firm to help them regain the trust of shareholders and industry analysts.  The public relations firm looked at the plumber's recommendations searching for a way to spin it so that BMO's management appeared to be in control, even though the fountain is leaking, and no one knows how much water has been lost.  The public relations team seizes upon Kevin Cassidy with his previous criminal record as the scapegoat to offer Federal Regulators, industry analysts and shareholders as the cause of the leaks.  The public relations firm knows that when people look at the fountain, they won't be able to see any of the plumbing flaws going on inside, but they will be able see the holes on the outside.  The PR firm knows it will intuitively make sense to people that the holes are to blame.

Once BMO focused people on the holes, no one seemed to be able to look beyond them.  In my opinion, the scheme BMO's PR firm developed fraudulently induced the US Government to bring criminal charges against Kevin Cassidy.  Once that was in play a myriad of other misfortunes befell Optionable, including the alienation of affection from NYMEX, the loss of any future potential business relationships, a class action lawsuit, and...  and... I'm sure I'm leaving something out, but I think you've got the idea. Optionable drowned in the leak BMO fraudulently blamed them for.

And that's the situation we find ourselves in today.  Optionable's defense team can talk until they're blue in the face, and provide all sorts of factual explanations that show how BMO was disingenuous in linking Optionable to the losses that they knew were their own responsibility, but at the end of the day, to the casual observer, it's all just noise.

Try this exercise.  Take a look at the picture of the fountain (above).  If you heard in the news that this fountain was leaking and a hole installed by an ex-con was to blame, would you believe it? Maybe you're like me and you'd question the story, but even I have to admit that it makes a very compelling sound bite. I mean, it really doesn't make a lot of sense that holes that high up on the structure would be the source of the leak once you start thinking about it, but at a glance, it comes off as a very likely possibility.  I understand why people continue to buy BMO's version of the story, while Optionable's is so difficult to explain.

And.... not that it matters.... but in case you're wondering about the actual fountain outside the courtroom.... Being something of an inquisitive person, I put my hand inside the hole to see if it was wet.  It wasn't.

(Note: If anyone knows the name of the artist who created this sculpture, please let me know, as I would like to thank him or her publicly in this blog.)

--------------------------------------------------------------------------------------------------
Part 2 - the notes

OK - enough of my analogy - here are the conference notes.  

  

* Disclosure: I am an Optionable shareholder and I attended the May 31 conference.  I took notes to the best of my ability.  These notes are not investment advice. These notes contain some personal observations and opinions.  

CFTC (on the phone):  Expects to resolve with Cassidy within a month.  Agreed to check in at the next conference in September.

BMO: has completed document production of over 6 million pages of data related to this case.  BMO requested 4 to 6 hours of access time during the depositions.  To be fair, I think it is worth noting that this document production was a huge undertaking by BMO and they should be commended for completing it. 

SEC: wanted to exclude the other prosecution teams from its depositions.  Judge Daniels said no that, but agreed that the SEC should get the 7 hours of deposition time they requested.  The Judge announced a Discovery schedule for the SEC case with milestones happening from Feb 2013 to May 2013.  Optionable is not named in that action. (although Cassidy and O'Connor are)

Depositions:  Kevin Cassidy will be deposed on June 21 and 22.  A third day with the SEC may be scheduled (if needed).  Kevin Cassidy's deposition schedule was the only deposition schedule discussed at the 5/31/12 hearing.  (Each day will consist of 7 hours of questioning - meaning that Cassidy is already scheduled to be questioned under oath for up to 14 hours, with a possibility that the SEC will want more time, pushing this up to a max of 21 hours of interrogation of a single witness.) 

CMEG / NYMEX (the main event of the 5/31/12 hearing) Motion for a Summary Judgment on the Express Warranty

NYMEX believes that Cassidy’s acceptance of a plea bargain, by itself, is enough for their request for a Summary Judgment to prevail.  Why?  Cassidy admitted to a crime and the warranty said – no crimes allowed.  NYMEX believes it had no obligation to Optionable once a crime was committed.  

Defense:

·         Nordlicht

·         The Nordlicht and Optionable defenses are allowed to claim that Cassidy’s actions were not a crime even though the Cassidy defense is prevented from saying or even implying this. 

o   The Judge thought this was a desperate Hail Mary strategy, and his comments had the SEC team snickering and elbowing each other.

·         * BMO knew that Lee was contributing quotes

·         * BMO could have told Cassidy to ‘cut it out’ but didn’t

·          * Cassidy’s actions were but one of several breaches in BMO’s preferred but undocumented  process. 

·         * Cassidy had no reason to believe that his breach of BMO’s preferred but undocumented  process was likely to have a material impact on Optionable’s business. 

·        *  If BMO hadn’t needed a scapegoat to blame for its losses, it never would have singled out Cassidy’s breach as having any significance – especially considering the myriad of other breaches by BMO itself.
* Personal observation: Basically, if you've got a Swiss Cheese process, there's gonna be holes, right?  And it's not just me, some kook on the internet saying that BMO's process had holes, it was the Auditors that BMO hired that said that BMO's process was significantly flawed in several key areas. 

o   The Judge countered that BMO’s actions are not relevant to the warranty made to NYMEX

o   The Judge said that Cassidy’s plea defines his actions as a crime and his admitted actions were happening during the period that the warranty was made to NYMEX.
o   Personal Opinion: What I believe the Judge missed is that Cassidy's actions were legal.  It was perfectly legal for Kevin Cassidy to receive quotes from David Lee, run them by a few other traders to check for reasonableness and then send them to BMO's Risk Management team.  Those are the "actions" we keep talking about.  The actions were outside of BMO's preferred but undocumented process, but they were not a crime.  These legal actions only became viewed as a crime after BMO lied to Federal Regulators, Industry Analysts and Shareholders at their Press Conference that: a) they were not aware of the actions, when they were and b) that the actions caused BMO to be misled about the value of Lee's portfolio, when BMO didn't even use Cassidy's reports to value Lee's portfolio.
"Whoa! Slow down there cowboy", you might interject.  If what I'm saying is true, why did Cassidy take a plea bargain?  Answer: As far as I can tell, where they snagged Cassidy was that he didn't disclose that Lee was a contributor of quotes from whom the report was based every time he faxed or emailed a report. Although it is clearly documented that both Cassidy and yes, even Lee (OMG!!!) told BMO Market Risk that Lee's quotes were included, Cassidy could not claim that he personally disclosed this fact each and every time he sent a report to BMO's Market Risk.  

·         Nordlicht’s summary points

o   Cassidy's plea is not binding to Nordlicht

o   Nordlicht has presented facts to NYMEX that they have failed to address

o   NYMEX’s request for Summary Judgment is premature – because the depositions have not happened yet, and they are only a few weeks away.

·         Optionable

o    Cassidy’s plea is not binding to Optionable

o   Optionable's reports disclosed their limitations.  BMO chose to ignore those warnings.

o   Optionable deserves the opportunity to defend itself.  The NYMEX request is premature.

O'Connor
o    While a technicality, O'Connor's lawyer pointed out that NYMEX missed a filing deadline and therefore NYMEX's reply papers should be stricken.  Judge Daniels acknowledged this point but decided to allow the papers - however he added that this point could be revisited if he rules in NYMEX's favor.
o    Corrected NYMEX's accusation that Optionable used the word 'independent' in their SEC filing when describing their quote service called Real Marks.  NYMEX has been corrected on this point previously.  You see, if Optionable had used the word 'independent' it would strengthen the argument that Kevin Cassidy was somehow legally obligated to disclose that the reports he sent to BMO were not independent.  The fact that NYMEX keeps claiming Optionable used the word 'independent' when they didn't, in my opinion weakens the argument that Kevin Cassidy was somehow legally obligated to disclose that the reports he sent to BMO were not independent.  Now, to be fair here, I will acknowledge that when Cassidy took the plea, he did admit that he knew BMO wanted independent quotes and that the quotes he sent were not independent.  What's interesting to me is that Optionable did not promise BMO independent quotes, and yet NYMEX's keeps saying in court hearings that they did.

Cassidy

·         BMO did not pay Optionable for the reports  (Personal note: I think the implication here is that a claim of fraud is weakened if the ‘victim’ did not pay for the purportedly fraudulent information)
*·         Cassidy sent Lee reports for several years, but there were only 7 or 8 reports sent during the time period under review.
** The reports were accurate.  (Let that sink in for a second.  The reports were accurate.  Optionable was destroyed, and a man is being taken away from his family for 2 1/2 years for sending ACCURATE reports.  That defies any concept of justice.)

·         Cassidy’s lawyer read Cassidy’s full allocution to the court.  He pointed out several allegations and assumptions that were being tossed around liberally by NYMEX that were not included in the allocution.  (And friends - there could be a lot more of that type of clarification coming from the depositions)  

·         NYMEX itself survived the discovery of a 10 year fraud being exposed, so it is not a fair conclusion to say that Optionable could not have survived this much less significant breach.  (Personal note:  Rather it was NYMEX's own abandonment of Optionable and not Cassidy's breach of an undocumented BMO process that caused NYMEX to lose money on their investment in Optionable.) 

·         Optionable did not provide BMO with valuations, they provided them with Bid and Ask quotes.  BMO had their own department that handled valuations.  (The confusion between valuations and quotes is a misunderstanding I was guilty of as well … until now.  How important is that clarification?  Well, it sure makes you wonder why BMO claimed the reports from Optionable confused them about the valuation of Lee's holdings.)

·         NYMEX had people living and breathing at Optionable months before it invested.  It had plenty of time for due diligence.  It had the knowledge and sophistication to understand how Optionable rolled.