November 18, 2008 / 7:22 PM / 9 years ago

U.S. regulators charge ex-Bank of Montreal trader

NEW YORK, Nov 18 (Reuters) - The Bank of Montreal’s former lead natural gas trader has pleaded guilty to inflating the value of his portfolio and conspiring with others to deceive the bank, federal prosecutors in New York said on Tuesday.

The former trader, David Lee, also admitted destroying evidence after an inquiry by the U.S. Commodity Futures Trading Commission, Michael Garcia, the U.S. Attorney for the Southern District of New York, said in a statement.

Separately, the U.S. Securities and Exchange Commission and the CFTC filed civil charges against Lee and several other traders he is accused of conspiring with between 2003 and 2007 to fraudulently overvalue a commodity derivatives trading portfolio at Bank of Montreal.

Garcia’s office also said a six-count indictment had been unsealed charging Kevin Cassidy, the former chief executive officer of the Optionable Inc commodities brokerage firm, with involvement in Lee’s scheme to deceive the Bank of Montreal.

In addition, Manhattan District Attorney Robert Morgenthau said Lee had pleaded guilty to breaking New York State banking laws by falsifying his bank’s trading records.

Lee’s actions led to Bank of Montreal in May 2007 reducing its net income for the 2007 first quarter by C$237 million, according to the SEC suit.

Bank of Montreal spokesman Ralph Marranca said the bank was pleased with the announcements by the authorities.

“We have cooperated fully with the authorities and we will continue to do so,” Marranca said.

The federal prosecutor said that after the scheme to deceive the Bank of Montreal was uncovered, the bank later announced commodities trading losses of more than C$800 million.

In 2007, Bank of Montreal reported C$853 million in losses in its commodities trading business, which knocked down its revenue and earnings.

The U.S. Attorney said Lee, 37, of Rutherford, New Jersey, pleaded guilty on Nov. 13 to conspiracy, wire fraud, making false bank entries and obstructing an investigation.

Cassidy, 49, of Bedford Hills, New York, was also charged with defrauding the New York Mercantile Exchange.

Filed in U.S. District Court in Manhattan, the SEC suit charges former energy trader Lee along with three traders at Optionable Inc -- Cassidy, Edward O‘Connor and Scott Connor.

“Lee overvalued the positions on BMO’s books by regularly recording inflated values that were then purportedly validated by Optionable Inc,” the SEC suit said.

It said the three Optionable traders “schemed with Lee to have Optionable simply rubber-stamp whatever inflated values Lee recorded.”

The CFTC also filed charges against three of the four men in U.S. District Court in Manhattan on Tuesday.

The commission said in a statement that the five-count complaint charged Lee with mis-marking and mis-valuing the bank’s natural gas options book and deceiving the bank. In that civil case, Optionable Inc and its former senior executives, Cassidy and O‘Connor, are accused of deceiving BMO. Lee’s former supervisor, Robert Moore, is also named as a defendant. (Additional reporting by Lynn Olver in Toronto; editing by John Wallace)

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