BMO Rogue Trader Charged After Losing at Least C$327 Million

A commodities trader is alleged to have manipulated his options book to hide losses, which cost the Bank of Montreal at least C$327 million.

David Lee, 36, a former natural-gas trader at the bank, pleaded guilty last week to criminal charges and is now facing a fraud complaint from the U.S. Commodity Futures Trading Commission.

Lee is alleged to have executed options trades and then knowingly mislead the Bank of Montreal about them in order to conceal the true value of his book.

"The CFTC complaint alleges that Lee unlawfully mis-marked his natural gas options positions between at least May 2003 and May 2007 and mis-valued other natural gas options positions from October 2006 until May 2007. Further, Lee and various brokers allegedly deceived BMO by fabricating purportedly independent broker quotes delivered to BMO's back office for price verification," the CFTC said in a press release.

The commission also hopes to hold Lee's supervisor liable for the improper conduct. They allege that Lee generated a larger bonus for himself and his supervisor by inflating the value of his book. In total, the CFTC has filed complaints against five men relating to the case, all of whom worked for the brokerage Optionable Inc.

The Bank of Montreal discovered a problem with its commodity book at some time last year and in April 2007 announced a pretax loss of C$680 million. The loss later grew to C$853 million.

The Federal Reserve issued an Order of Prohibition preventing Lee from dealing with any financial institution or exercising any of his voting rights.

By Adam Button and edited by Stephen Huebl
©CEP News Ltd. 2008