SEC accuses 4 of inflating bank's portfolio

Tue Nov 18, 2008 5:02 PM EST

Federal regulators on Tuesday accused four people of inflating the value of Bank of Montreal's trading portfolio to falsely enhance its financial results. One of the four pleaded guilty to related criminal charges and agreed to a civil settlement with the Securities and Exchange Commission.

The SEC announced its charges, brought in a civil lawsuit in federal court in New York, against David Lee, a former managing director of the bank's commodity derivatives group. Also charged were Edward O'Connor, president of commodities brokerage firm Optionable Inc., and that company's former chief executive Kevin Cassidy, and former broker Scott Connor.

Lee pleaded guilty to related criminal charges filed by the U.S. attorney in Manhattan and the Manhattan district attorney's office, and agreed to forfeit $4.4 million.

Lee, 36, also agreed to settle the SEC's charges by accepting an injunction against future violations of the securities laws. He did not admit or deny wrongdoing in the civil settlement.

The U.S. Commodity Futures Trading Commission, in a separate action, announced similar charges against Lee, Cassidy and O'Connor.

The SEC's claims for civil penalties and restitution against Lee and all of its claims against Cassidy, O'Connor and Connor, 31, are pending. The agency is seeking injunctions, unspecified civil penalties and restitution against the current and former Optionable workers, as well as a ban against Cassidy and O'Connor, 55, from serving as officers or directors of any public company.

The SEC alleged in its suit that Lee fraudulently overvalued Bank of Montreal's portfolio of natural gas options by hundreds of millions of dollars by deliberately "mismarking" trading positions for which market prices were unavailable, making the options difficult to sell. Lee was said to have conspired with Cassidy, O'Connor and Connor to have their brokerage firm "rubber-stamp" the inflated values that he recorded.

After the scheme came to light, the Canadian bank had to restate its results by cutting its reported net income for the first quarter of fiscal 2007 by about $204 million U.S. dollars, or 68 percent, the SEC said.

The four "engaged in an elaborate scheme to overvalue illiquid assets held on the books of a publicly traded bank," SEC Enforcement Director Linda Thomsen said in a statement.

The SEC also accused Cassidy, 49, and O'Connor of deceiving shareholders of New York-based Optionable by hiding its role in the scheme. It also alleged that they defrauded the New York Mercantile Exchange by selling more than $10 million of their Optionable shares to the exchange in April 2007.

An attorney for Lee, Amy Walsh, said her client "has accepted responsibility for what he did, and he has been cooperating with all the governmental authorities for quite some time now."

Connor's lawyer, Michael McAllister, declined to comment. Attorneys for Cassidy and O'Connor didn't immediately return telephone calls seeking comment Tuesday afternoon.

© 2009 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.
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{"commentId":4118979,"authorDomain":"jerwelman"}
jerwelman

Dealing with commodities need :

1.  long mileage of cash reserve.  and

2.  accuracy in paying bonds to intentionally get a quick sale/buy in cases.

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    Reply#1 - Tue Nov 18, 2008 10:48 PM EST
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