Scapegoat Jailed to Hide Canadian Bank's Risky Trading

PRLog (Press Release) - Oct. 23, 2012 - "In  for a penny, in for a pound" justice encourages us to believe that in  large financial disasters if we can find someone to blame for a tiny  part of the problem, then we are justified in blaming them for the whole  mess. It's an interesting flip on the Occupy Wall Street  claim that large banks only focus on the wealthiest 1% and ignore the  rest of us.  In this case, the Bank of Montreal (BMO) focused its  shareholder's and Federal Regulator's attention on the 1% of blame the bank ascribed to Optionable, and  managed to blind them all to the other 99% of the blame for which BMO  was clearly solely responsible.

A matter of Independence
Divisions  within the Bank of Montreal had a long standing disagreement about  whether or not the bi-monthly Bid/Ask summary reports they collected  should be 'independent' of Bid/Ask quotes from their own traders. BMO Market Risk wanted 'independent' quotes and BMO Commodities Group did not.

Kevin  Cassidy's company Optionable collected Bid/Ask quotes anonymously and  hence they could not (and did not) promise BMO Market Risk that the  reports they sent were 'independent' of the BMO's own traders.  This  didn't sit well with the Bank's Market Risk Division, and there were a  fair amount of discussions and meetings (both internally and with  Optionable) about it.  At the end of the day, Cassidy told BMO Market  Risk that since Optionable could not provide 'independent' reports that  the Bank's best insurance was to use reports from multiple brokerages,  in addition to the industry standard reporting agencies.  (Advice that  BMO eventually followed)

BMO Bet Huge in Exclusive Tiny Markets
When BMO's star trader, David  Lee, who had made hundreds of millions of dollars in profit for BMO in  exclusive, exotic and risky markets (where angels fear to trade) started   losing money, industry analysts began criticizing BMO's risky trading.   BMO needed someone to blame.  With the help of their public  relations/crisis management  team they found Kevin Cassidy, who had an unrelated criminal conviction  15 years earlier.  Deliberately ignoring the fact that Cassidy had dealt  honestly and ethically with the Bank for years, the Bank pretended that  this ex-con had tricked them 'somehow' with his reports that were not  'independent' of the Bank's money losing trader David Lee.  (I put the  word 'somehow' in quotes because the Bank has never even attempted to  provide any type of explanation showing a correlation between Cassidy's  reports and David Lee's trading losses.)

BMO's  scheme worked.  BMO's scheme put Optionable out of business and placed  Kevin Cassidy under Federal Criminal Indictment.  Cassidy struck a deal  with Federal Prosecutors and agreed to plead guilty to failing to put a  disclosure statement into the reports he sent to BMO's Market Risk  division alerting them to what they already knew, that the reports were not 'independent' of the  Bank's own traders.    

So, was Cassidy ever really "In for a Penny"?
If  you subscribe to "in for a penny, in for a pound' justice, where 1% of  the guilt gets you 100% of the blame, here's the question I want you to  ask yourself.  Was Kevin Cassidy ever 'in for a penny'? All we need to  debunk BMO's Penny theory is show that BMO knew the reports Cassidy sent  were not collected Independently of the Bank's own traders.  Well -  Cassidy provided exactly this proof under oath during his deposition.   Cassidy provided the names and dates of BMO Officers to whom he  specifically explained the non-independent nature of his reports.

So  there it is: Optionable's business was destroyed, Cassidy is going to  jail, and yet BMO's claim that Cassidy was somehow 'in for a penny'  doesn't hold up.

Post Script: Kevin Cassidy is scheduled to begin serving a 30 month sentence in a  New York State Federal prison on October 19, 2012.

Standard disclaimer:   I am an investor in Kevin Cassidy's former company Optionable.   I do not offer advice regarding buying or selling any  security.