- Posted May 4, 2013 by
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- Downe in Front (Part 1)
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- J’Accuse: BMO CEO Misrepresented Auditor’s Report to Federal Regulators and Shareholders
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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.
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. .... end quote ....
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 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.