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.

Our Collective Misdiagnosis of Kevin Cassidy

I'd like to share a link to an article with you that I believe explains how an innocent man came to find himself in prison and pinged for a ludicrous amount of restitution money, payable to the perpetrator of the hoax against him.

While you read the article I would like you to think of Kevin Cassidy with his previous, unrelated criminal record in the same light as the "pseudopatients" in the article.  Despite all the good intentioned and well meaning people involved in the legal system Cassidy met a similar fate as the pseudopatients who encountered the good intentioned and well meaning folks in the mental health system. Unfortunately for Cassidy, his story has no psychologist, no David Rosenhan to pull him out of the asylum.

By the way, I include myself in with the people who misdiagnosed Kevin Cassidy, at least in the beginning.  Having had the experience of misdiagnosing Cassidy myself helps me understand how other well meaning, good intentioned and intelligent people can still be under the same misconception. I think this article does a good job of explaining how that can happen.

The article is named "Psyched Out" and its author is Dan Lewis.  (you can read it here )

Discovery Schedule Conference

(Seen on my way to the courthouse)

Question: What has one Judge and fifteen lawyers?
Answer: An Optionable Conference.

The Judge's Agenda:  Set discovery schedules for the following cases: SEC, CME/NYMEX (NYMEX) and Bank of Montreal (The Bank) 
Case excluded: CFTC (per Lawrence Gelber's statement to Judge Cott)  

My personal agenda: Sniff out if The Bank has any other mediation sessions going on given that they just had a 2 day mediation earlier this week with Joe Saab of MF Global *1

Here's what I learned: Joe Saab's lawyer (Owen Pell) described the 2 day mediation session between his client and The Bank as "unsuccessful". At the very tail end of the 3 hour conference, The Bank's lawyer (Tim Haggerty) made a general statement that The Bank was interested in entering mediation with any of the other defendants.  I got the impression that no other defendant is currently in mediation with The Bank.

As for the official agenda, here's how that went:

Ed O'Connor (Optionable) is now the lone defendant who has not settled with the SEC, so a discovery schedule was needed for the SEC case. Judge Cott hammered O'Connor's lawyer Scott Smith 8-ways-till-Sunday over Smith's assertion of O'Connor's right to depose David Lee before going to trial with the SEC. The sticking point is that Lee is entitled to only be deposed once and several of the other defense lawyers don't want to depose Lee until The Bank has delivered more 'privileged' information. Owen Pell 'stuck his head into the lion's mouth' more than once on Smith's behalf, although to his credit, Smith stood his ground and got what he was asking for - the ability to depose Lee. (by July 1).  The other defense lawyers will still be able to depose Lee later by using the definition of "once" to mean "several times" as long as Lee isn't asked the same questions over and over.  Smith also mentioned wanting to depose both Bob Moore (Lee's former boss) and Murray McIntosh (one of The Bank's Risk Managers who was key in painting a picture of fraud in the minds of The Bank's upper management - in my opinion)  My personal reaction to hearing that Lee, Moore and McIntosh would all be deposed = Hell Yeah!!!!)
Schedule:  Settlement conference: May 15th - letters to the Judge due by May 8
Expert Disclosure by May 31 - Rebuttal by June 18
Depositions conclude by July 1.

Judge Cott used a variety of strategies to motivate the legal teams to consider settling.  Ed McDermott (for NYMEX) wasn't interested in waiting around for The Bank to reveal their 'priviledged' information that defense lawyers claim will show that Optionable's reports were accurate.  McDermott's agrument is his only burden is to show that there was an agreement between Lee and Cassidy to hide Lee's losses, and that it is irrelevant if Cassidy's reports were accurate.  Judge Cott told him that he would have to wait.  Solomon Klein (for Mark Nordlicht) and Owen Pell both wanted more time to examine The Bank's 'privileged' data. Pell went as far as to drop the "E-bomb" (Enron) and let the Judge know that in his work representing 2 banks in a class action against Enron, discovery took up to 7 years, and that what he was seeing in The Banks transactions were even more complicated. That appeared to get the Judge's attention, but he still told Pell that he needed to hurry up.
Schedule:  Fact finding and expert testimony needs to wrap up in a year - 4/1/14.  Earlier in the session, the Judge had been suggesting the end of this year, but pushed it to 4/1/14 with the warning that he was pre-baking in the requests for an extension.  (Personal note: I try this approach with my son sometimes, and am still disappointed when crunch time comes and he doesn't get the concept)


Bottom Line:

Mark Nordlicht just pumped enough cash into Optionable yesterday (4/10/13) to keep the cash-strapped company afloat for about a year.  (Nordlicht was repaid with newly minted OPBL shares) I think that speaks to his readiness to take this to trial rather than settling.  If BMO's or NYMEX's strategy was to stall until Optionable ran out of cash, that plan was just thwarted.

------------------------------------------------------------------------------------------
footnote:

* 1: I think of Joe Saab at MFG as being a peer or counterpart to Kevin Cassidy at Optionable. However, even though both men performed similar tasks per The Bank's instructions, I think it's only fair to Saab that I acknowledge that The Bank's 'Blame Optionable' campaign portrayed Cassidy as being 'much more guilty' than Saab given Cassidy's unrelated previous criminal record which made him such an opportune and indelibly delicious scapegoat.

How the Judge Got it Wrong

What Cassidy Admitted To, How the Judge Saw It, And What The Bank Wanted

One of the benefits of being an American is that any crackpot with an internet connection can write a blog and criticize the decision of a highly respected Federal Judge.  Ready? here we go....

I believe Judge Daniels got it wrong when he described what Kevin Cassidy admitted to in the Federal Criminal case against him.  That said - I can see how the Judge came to the decision he reached.  It turns out that the Judge was writing his decision around the same time as Kevin Cassidy was giving his deposition testimony - and the deposition is where a lot of interesting details came out.   What's more - it wasn't until several months after Cassidy's deposition that Ed O'Connor gave his deposition testimony during which four separate processes emerged describing the instructions Optionable followed over the 2003 to 2007 time frame.

Simply put, when the Judge wrote his decision all of the facts had not been presented in court, so he wrote his decision based on the information that actually had been presented.

What do I believe the Judge got wrong?  The Judge wrote his decision as if Optionable took quotes from The Bank of Montreal's (The Bank) trader David Lee and simply sent those quotes back to The Bank verbatim, without any analysis whatsoever. According to both Cassidy's and O'Connor's sworn testimony, that's not what happened, but it is a reasonable interpretation of The Bank's complaint. 

What do I believe the difference is between what Cassidy admitted to and the Judge's interpretation?

I believe Cassidy admitted that he accepted quotes from The Bank's trader as the origination point of the quotes (something that Cassidy knew The Bank's Back Office did not want to happen) and did not explicitly tell The Bank's Back Office who originated the quotes when he delivered his report.

Here is my interpretation of Cassidy's explanation of why he did this:  When Cassidy presented The Bank's quotes to other traders in the market he had to be prepared to "put up or shut up" and make actual trades for real money right then and there based on those quotes.  As a brokerage firm, Optionable had no ability to "put up or shut up" on their own - they needed to be representing a client who stood ready to trade on those quotes.  Cassidy's deposition testimony makes clear that he explained this to The Bank and that they acknowledged understanding what he told them. 

I've got no gripe with The Bank for wanting Optionable to prepare the reports with quotes that were 'independent' of The Bank's own traders.  My gripe is that The Bank's Risk Managers did not communicate with Optionable independently of the Bank's own traders. In David Lee's interview with the FBI, Lee said that he fought with The Bank's Back Office over this very point - and that the Bank Office grudgingly conceded that Lee had to be the one to originate the quotes.

That's what I find so frustrating about this case.  I know that as a reader of this blog, you may see me as just some crackpot trying to breathe life back into my worthless Optionable shares - but what I'm really hoping to get across here is that The Bank's claim - that they didn't know that Lee originated the quotes - is a claim that just isn't supportable by the facts. And that the view expressed in the Judge's Decision Order, which is written as if Optionable performed no service at all, completely dismisses the work that Cassidy and O'Connor described in their sworn depositions. 

Here is the transcript of what Cassidy admitted to:

August 15, 2011

THE COURT (HON. THOMAS P. GRIESA): Now, if you still wish to plead guilty, would you tell me in your own words, and certainly you can give it in summary form without every detail, but would you tell me what you did to commit the offense that is charged here?

THE DEFENDANT (Kevin Cassidy): In the fall of 2006, I arranged for my company Optionable to develop a service called RealMarks, which was designed to provide market quotes concerning natural gas option contracts. From September 2006 to April 2007, this service provided market quotes to the risk management department of Bank of Montreal.

While I believed that the RealMarks quotes provided to BMO were legitimate, most of the quotes that RealMarks provided to Bank of Montreal's risk management department originated with Bank of Montreal's own trader David Lee. I agreed with Lee that on month end days he would provide Optionable with the quotes, Optionable would make an effort to show the quotes to other traders in the market, and then at the end of the day, Optionable would send quotes to Bank of Montreal's risk management department. Although I understood that BMO's risk management department wanted quotes that were not contributed to RealMarks by Lee and felt it was an important factor, I did not tell the risk management department that many of the quotes had originated with Lee.

Here is how Judge Daniels interpreted Cassidy's admission in his Decision Order: Do you see the disconnect here?  It's written as if Optionable did no analysis at all.

August 24 2012: Memorandum Decision and Order

Judge George B. Daniels: On August 15, 2011, Cassidy pled guilty to conspiracy to commit wire fraud.  In his allocution, Cassidy admitted to forwarding Lee's quotes directly to BMO, even though he knew that BMO management wanted him to verify the accuracy of those quotes by independently testing them against the market to ensure Lee's accuracy.  

I know this probably overkill - but one more time - here are differences between 1) What Cassidy Admitted to  2) How the Judge Saw It and 3) What I think The Bank Was Hoping For - in chart form:

What Cassidy Admitted to: Cassidy admits that David Lee originated the quotes

What the Judge Saw:

In the Judge's view, Optionable just sent the quotes to The Bank's Back Office without any review of them whatsoever.  In this view, David Lee's origination of the quotes isn't the problem, but a perceived failure on Optionable's part to actually do anything with them before sending them to The Bank's Back Office.

 































What I Think The Bank Was Hoping For: (assumed)
Now, The Bank has failed to document how this process was supposed to work, so I can't provide you with an exact quote where they state what they wanted.  As far as I can determine, what The Bank wanted was for someone other than one of The Bank's traders to originate the quotes, yet they decline to say who that someone was supposed to be.  

I believe that my investment in the company called Optionable was destroyed by The Bank of Montreal's actions - and that an innocent man (Kevin Cassidy) is sitting in jail, separated from his loving family, while being pinged for millions in restitution payments to The Bank whose flawed processes caused this whole mess. 


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

Infighting at The Bank of Montreal - behind the scenes

Sometimes a little inter-departmental tension can help keep people on their toes.   At the Bank of Montreal (The Bank) the battle was fought between stressed out Traders who made and lost millions and number crunching analysts who tried (and failed) to protect it. 

As the man in charge of the Traders it was Bob Moore’s (Bob) job to fight off any restrictions that Market Risk tried to impose.  Even though they fought almost weekly, Market Risk’s Murray McIntosh (Murray) admitted that Bob was good at his job.  According to what Murray told the FBI, Bob was always aggressively pushing for higher trading limits.  Murray was also responsible for selecting the data sources that Market Risk used to track how the Traders were doing. Here again Bob steamrolled over Murray’s authority and insisted that that Market Risk use quotes from brokerages that Bob’s group traded with rather than consensus quotes from sources that were independent of The Bank.

Point/ counterpoint: Bob feared that sending his prices out for consensus quotes would expose them to the market. Bob argued successfully that this unnecessary exposure would hinder his team’s performance and profitability.  Murray claimed that any broker’s view of the market was influenced by the trading that brokerage did with The Bank.  Murray and fellow Market Risk analyst Patrick Cronin (Pat) found the notion that brokers were capable of providing quotes that were independent of The Bank laughable.  Since The Bank’s trading was the very lens through which the brokerages saw the market, ‘independence’ from the bank simply was not possible (in the opinion of the Market Risk team).

From 2003 until 2006 Bob’s profits trumped Murray’s authority to select the data source.  Murray later lamented to the FBI that every time he raised the issue with upper management they would just look at him and Bob and then shake their heads, not knowing who to believe.

Murray’s believability got a boost though when he told The Bank’s upper management that Bob’s group was losing money and that he suspected one of Bob’s Traders David Lee (Dave) of deliberately adjusting his prices to hide millions of dollars in trading losses.  Murray suspected that Dave was “adjusting the skew" of his OTM options (out of the money options) while still reporting accurate prices for his ATM options (at the money options).  ATM options are more widely traded than OTM options, so the fear was that Dave might be hiding losses in exactly the places where reliable market data was scarce. 

In brief, here’s what happened next:

1)    Market Risk brought in a lot of smart people who were sophisticated in the type of trading that Bob’s group did.
2)    At the beginning of the investigation, it appears that Dave was given the benefit of the doubt. After all, given the risky nature of what The Bank employed Dave to do, the ebb and flow of millions in profits turning into millions in losses came with the territory. 
3)    As they became more certain that Dave was adjusting his prices they also began to wonder if Bob knew about the deception.  
4)    Something that surprised Market Risk was that as the investigation progressed and the tables began to turn on Bob, he became even more arrogant.  He began demanding higher trading limits on a portfolio that was already (according to Market Risk) staggeringly huge.  What’s more, rather than conceding to the use of consensus quotes Bob continued to insist that Market Risk use broker quotes that they openly and vocally mistrusted.
5)    Bob’s swagger and bullying tactics stopped working. Upper management instructed Bob to lower the risk in the portfolio and Market Risk got authorization for their consensus quotes. 
6)    Bob and Dave did lower the risk in the portfolio, but they did it in a way that Market Risk felt was just gaming the system.
7)    In what may have been a concession to Bob, upper management signed off on a new reporting service from brokerage firm Optionable called Real Marks.  Real Marks was still broker based but according to Optionable’s CEO Kevin Cassidy (Kevin) it provided a wider lens into the market than Optionable had been able to provide previously.  Murray questioned Kevin as to how many other brokerages Real Marks could see and Kevin replied that it could see all of the majors with the exception of Goldman Sachs.
8)    In January 2007 when Market Risk compared quotes from Optionable’s Real Marks to the consensus quotes they had wanted for so long, both sources found similar discrepancies in Dave’s portfolio.
9)    The investigation wrapped up.  Market Risk wrote up a report that convinced everyone who read it, from upper management to Bob himself, that Trader David Lee had been hiding losses by adjusting the skew of his OTM options.

The Cover Up:
When it came time to explain all of this to their investors and Government Regulators The Bank hired a crisis management / public relations firm called DKC. The strategy DKC came up with was named “Blame Optionable”.  The ‘Blame Optionable’ campaign linked The Bank’s trading losses to the ‘non-independent’ reports it received from Optionable.  Even though Optionable's reports were consistent with the 'independent' reports, The Bank claimed that the auditors they hired were seeing 'the largest discrepancies that they had ever seen'.  The next day Optionable’s partner NYMEX (now a part of CME group) announced that it was launching a service with Optionable’s competitor.  And to seal the deal, Oops.... it was reported in the press that Optionable’s CEO had a criminal record. Optionable ceased generating revenue within days. When the smoke cleared, The Bank launched a lawsuit seeking monetary damages from Optionable. 

Disclosure: I am an Optionable shareholder. (symbol OPBL.ob)  This blog does not offer advice about buying or selling any security.  A good portion of what I have written about in today's post was found on Pacer in exhibits to Defense's 9/17/12 letter opposing The Bank's request for restitution. Given my bias as an Optionable shareholder I encourage you to read the original documents for yourself here:

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.