Optionable Inc. (OPBL) former Chief Executive Officer Kevin Cassidy, sentenced to 30 months in prison for fraud, said Bank of Montreal’s lawsuit against him over the fraud should be dropped permanently.
BMO’s request to drop the four-year-old suit with an option to refile it is intended to prevent the lender’s CEO Bill Downe from having to testify, Cassidy said in Nov. 27 filing in Manhattan federal court.
Cassidy, who pleaded guilty in 2011 to conspiracy to commit wire fraud for helping a former trader at BMO conceal as much as C$853 million ($803 million) in commodity-trading losses, called its suit against him malicious and intended to shift blame from the bank. A ruling in Cassidy’s favor would make it easier for him to seek damages in a possible countersuit.
BMO, after being advised by a magistrate judge that Downe would probably have to answer questions from Cassidy’s lawyers in January, “chose to fold its tent and go home,” Cassidy said in his filing.
Paul Deegan, a BMO spokesman, declined to comment on Cassidy’s filing in a phone interview because the matter is before the court.
The lawsuit stems from C$680 million of pretax commodity-trading losses announced in April 2007 by BMO. The losses grew to C$853 million for the fiscal year and pared profit by C$440 million, a record trading loss for a Canadian bank at the time.
The Toronto-based lender, in a Nov. 20 filing sought to have its suit against Cassidy dropped without prejudice, meaning it could refile the case. The bank has said it reached preliminary settlements with Optionable, MF Global Holdings Ltd.’s bankruptcy estate and four other defendants in the case.
The bank asked the court to dismiss the lawsuit because Cassidy doesn’t have the $8.6 million he was already ordered to pay the bank in restitution.
“Any jury verdict against him in this civil litigation would offer BMO no economic benefit,” the bank said.
According to court papers, the fraud began in 2003 when BMO trader David P. Lee began mismarking some of his natural-gas positions. In 2006, the market turned against Lee and he used the scheme to hide trading losses, authorities said.
Optionable, based in Ossining, New York, helped Lee as a way to win business, prosecutors said. Lee pleaded guilty to fraud in November 2008 and was fined $500,000 for his role in mismarking and improperly valuing BMO’s natural-gas options from 2003 to 2007.
Optionable advised BMO that Lee had overvalued Optionable’s quotes by $229 million, Cassidy said.
Cassidy called the bank’s reasons for dropping the suit against him, “patently absurd.” Neither the Department of Justice or BMO were able to show Cassidy caused any of the bank’s losses, he said.
BMO disclosed a previous $51 million natural gas trading loss in 2001 and then ignored advice to correct its trading system, Cassidy said. He also said in the filing that Downe has acknowledged the system’s flaws in an e-mail.
“‘You couldn’t lose this much money by taking one gigantic bet if you had risk controls in place,” Downe wrote to a senior officer at the bank in a May 5, 2007 e-mail attached as an exhibit to Cassidy’s filing.
The case is: Bank of Montreal (BMO) v. Optionable Inc., 09-cv-7557, U.S. District Court, Southern District of New York (Manhattan).
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