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Do you think Optionable Inc. executives are responsible or its system what made them?

By Amarendra Bhushan for CEOWORLD Magazine Updated:November 19, 2008

The former chief executive of commodities broker Optionable Inc. (OPBL) was charged Tuesday in a six-count indictment with helping a former Bank of Montreal (BMO) senior trader inflate the value of the bank’s commodity derivatives trading portfolio.

Kevin P. Cassidy, the one-time CEO of Optionable in Valhalla, N.Y., was charged with conspiracy, two counts of wire fraud, aiding and abetting the making of false bank entries, and securities fraud.

The trader, David Lee, has pleaded guilty to federal and state charges in the matter, prosecutors said. Lee is cooperating with prosecutors and other regulators, said Amy L. Walsh, one of Lee’s lawyers.

Cassidy, 49 years old, of Bedford Hills, N.Y., pleaded not guilty to the charges at a hearing before a federal magistrate judge in Manhattan on Tuesday. He was ordered detained pending a bail hearing Thursday.

“Kevin Cassidy vigorously disputes the charges and looks forward to being vindicated in court,” said Douglas R. Jensen, Cassidy’s lawyer.

Cassidy, one of Optionable’s founders and its vice chairman until he resigned in May 2007, faces up to 30 years in prison on the false bank entry charges and 20 years in prison each on the wire fraud and securities fraud charges.

Prosecutors have alleged that Cassidy helped David Lee, a former senior commodities trader at BMO Capital Markets Corp., inflate the value of natural gas options positions on Bank of Montreal’s books by overstating the fair market value of some of his positions.

The government said Lee began mismarking his trading positions in 2003 in order to enhance his apparent job performance and to receive larger bonuses. However, market conditions worsened in 2006 and Lee increased his mismarking in order to minimize his losing positions, prosecutors said.

Optionable, under Cassidy’s direction, rubber-stamped the valuations and sent them back to Bank of Montreal’s risk-management department, the government said. Optionable held itself out as a provider of independent derivatives valuation services.

The company would send price quotes for Lee’s positions to Bank of Montreal that matched his inflated markets, prosecutors said. Cassidy agreed to do so in order to incentivize Lee to use Optionable for commission-generating trades, the government said.

Prosecutors also alleged Cassidy defrauded the New York Mercantile Exchange through Nymex’s purchase of an ownership stake in Optionable in April 2007 and committed wire fraud in connection with a contemplated purchase of an ownership stake in Optionable by the Intercontinental Exchange in November 2003.

On Tuesday, the U.S. Securities and Exchange Commission brought civil charges against Lee; Cassidy; Scott Connor, a former Optionable commodities broker; and Edward O’Connor, Optionable’s president.

Connor resigned from Optionable in May 2007, while O’Connor remains its president and a director. The U.S. Commodity Futures Trading Commission also filed a civil complaint in federal court Tuesday against Lee, Cassidy, O’Connor, Optionable Inc. and Robert B. Moore, who served as Lee’s supervisor.

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