The Securities and Exchange Commission today charged four financial services workers with engaging in a fraudulent scheme to overvalue the commodities derivatives trading portfolio at the Bank of Montreal.
The individuals charged are David Lee, former managing director of Toronto-based BMO Financial Group’s commodities derivatives group as well natural-gas provider Optionable Inc.’s chief executive Kevin Cassidy, president Edward O’Connor and broker Scott Connor.
The SEC’s alleges that Mr. Lee fraudulently overvalued BMO’s portfolio of natural-gas options by deliberately mismarking trading positions, which were then validated by Valhalla, N.Y.-based Optionable.
He schemed with Mr. Cassidy, Mr. O’Connor and Mr. Connor to have Optionable rubber-stamp whatever inflated values were recorded, according to the SEC.
After the scheme was discovered, BMO restated its financial results by reducing net income for the 2007 fiscal first quarter by roughly $237 million Canadian dollars ($204 million U.S.), a 68% overstatement of the bank’s net income for that period.
The SEC is seeking from each defendant a permanent injunction against future violations, disgorgement of ill-gotten gains plus prejudgment interest and civil monetary penalties.
Neither the Bank of Montreal nor Optionable immediately returned phone calls for comment.
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