Marcy Gordon, The Associated Press
November 18, 2008 - 6:37 p.m.
WASHINGTON - Federal regulators in the United States on Tuesday accused four people of inflating the value of Bank of Montreal’s (TSX:BMO) mercantile portfolio to falsely enhance its pecuniary results. One of the four pleaded guilty to kindred 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 dint of. the U.S. attorney in Manhattan and the Manhattan district attorney’s office, and agreed to forfeit US$4.4 million.
Lee, 36, also agreed to settle the SEC’s charges by accepting an precept 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 play, 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 undetermined. The agency is seeking injunctions, unspecified civil penalties and repayment 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 hold 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 unencumbered, the Canadian bank had to restate its results by cutting its reported toil income for the primary quarter of its 2007 pecuniary year through about US$204 the great body of the people or 68 per cent, the SEC reported.
The four “engaged in an minutely and intricately wrought scheme to make too much of illiquid assets held on the books of a publicly traded bank,” SEC enforcement director Linda Thomsen uttered in a announcement.
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 besides 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.
A lawyer for Lee, Amy Walsh, said her client “has accepted responsibility for the sake of what he did, and he has been co-operating with all the governmental authorities for quite some time now.”
Connor’s lawyer, Michael McAllister, declined to comment. Lawyers for Cassidy and O’Connor didn’t immediately return telephone calls seeking make comments Tuesday afternoon.