Sentencing Delay Stalls Cassidy Deposition

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

December 20 Civil case conference with Judge Daniels

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

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

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

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

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

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

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

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

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

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

Next conference March 1, 2012

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

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

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

Hook.Line.Sinker

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

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

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

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

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

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

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

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

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

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

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

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

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

What Would Mark Nordlicht Do?

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

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

Who is Mark Nordlicht?

* One of the founders of Optionable

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

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

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

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

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

* Has the money needed to defend Optionable at trial

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

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

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

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

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

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

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

Links to some press clips:

Reuters:

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

Bloomberg:

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

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

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

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

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

The Globe and Mail (Canadian)

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

Forbes:

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

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

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

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BRIEF DESCRIPTION OF THE CASE

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

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

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

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

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

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

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

Nordlicht buys 3.3% of Optionable's Shares

Mark Nordlicht is once again an Optionable Insider.

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

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

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

Mark Nordlicht updates his offer

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

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

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

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

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

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

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