New York, NY – November 18, 2008 – David P. Lee, a former trader with the Bank of Montreal (BMO), has been charged with valuation fraud by the U.S. Commodity Futures Trading Commission (CFTC). The CFTC filed a five-count complaint in the U.S. District Court for the Southern District of New York, alleging Lee mis-marked and mis-valued the bank’s natural gas options book, deceiving BMO in the process.
The complaint also names Optionable, Inc., and its former senior executives Kevin Cassidy and Edward O’Connor, accusing them of participating in the deception. Additionally, Robert B. Moore Jr., Lee’s former supervisor, is named as a defendant, with the CFTC seeking to hold him liable for Lee’s actions due to his supervisory role.
According to the CFTC, between May 2003 and May 2007, Lee unlawfully mis-marked his natural gas options positions, inflating their value. From October 2006 to May 2007, he further mis-valued other natural gas options. The alleged scheme involved fabricating independent broker quotes delivered to BMO’s back office for price verification, violating anti-fraud provisions of the Commodity Exchange Act (CEA) and CFTC regulations.
The CFTC alleges Lee inflated the value of his trading positions to appear more profitable, resulting in an unlawful inflation of the BMO natural gas book by approximately $221,875,297 Canadian dollars as of January 31, 2007, and $257,801,706 Canadian dollars as of March 30, 2007. This manipulation allegedly allowed Lee and Moore to receive larger bonuses while concealing trading losses.
The fraud occurred despite BMO’s existing process for verifying trader prices using external sources. Lee, along with brokers from Optionable, allegedly created and transmitted fabricated bid/offer quotes to BMO’s back office to circumvent this verification process. The CFTC is pursuing financial penalties and other remedies against Lee, Optionable, Cassidy, O’Connor, and Moore.
Acting Director of Enforcement Stephen J. Obie stated the CFTC will continue to prosecute those who attempt to infect the commodity markets with false information or valuations. The case highlights the importance of accurate valuations for the proper functioning of the nation’s economy.
Source: CFTC.gov
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