March 30, 2015 / 9:49 PM / 2 years ago

Ex-Bank of Montreal trader to pay $14.2 mln for trading scam

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NEW YORK, March 30 (Reuters) - Bank of Montreal's former top natural gas trader was ordered to pay $14.2 million in restitution on Monday after pleading guilty to charges that he inflated the value of his portfolio and conspired with others to deceive the bank.

David Lee, 43, was spared prison time by U.S. District Judge Loretta Preska in Manhattan in light of his years of cooperating with authorities investigating a trading scheme that contributed to a C$853 million loss in Bank of Montreal's commodities trading business for 2007.

Prosecutors said beginning in 2003, Lee began deliberately overstating the value of positions in his natural gas book, making it look more profitable and enabling him to earn larger bonuses.

Typically, BMO would seek to independently verify those prices by comparing quotes for similar positions that the bank obtained from third-party brokerage firms, including Optionable Inc.

But in 2004, Lee began subverting the process by supplying BMO prices directly to Kevin Cassidy, Optionable's then-chief executive, who in turn would quote them back to the bank, prosecutors said.

In return, Lee funneled trades to Cassidy, resulting in Bank of Montreal generating more than 40 percent of Optionable's brokerage revenue by early 2007, prosecutors said.

When the scheme unraveled, Bank of Montreal restated its financial results and incurred massive losses. It also stopped doing business with Optionable, causing the brokerage's shares to plunge after a more than sixfold gain in less than two years.

Cassidy pleaded guilty to conspiracy to commit wire fraud and was sentenced in April 2012 to 2-1/2 years in prison. He was released on Dec. 12, federal prison records show.

Lee as part of a cooperation deal pleaded guilty in 2008 to charges of conspiracy, wire fraud, making false entries in the books and records of a bank and obstruction of justice. He also entered a guilty plea in a related New York state court case.

Lee's lawyer did not immediately respond to requests for comment on Monday.

The case is U.S. v. Lee, U.S. District Court, Southern District of New York, No. 08-cr-1135. (Reporting by Nate Raymond in New York; Editing by Tom Brown)

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