Fraud, energy derivatives trading

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Fraud has become a big issue in energy derivatives trading.

A former Bank of Montreal (BMO) natural gas trader pled guilty in November 2008 to intentionally mismarking trades, resulting in  over $800 million of fraud-related trading losses.

The interesting part in the item on  EmpireStateNews.Net was that that the natural gas trader pleaded guilty to violating state banking law, not theft. So where did he money go?

A 37-year-old, pled guilty to falsifying BMO’s trading records. In pleading guilty, the defendant admitted that from May 2003 until April 2007, he intentionally falsified BMO’s records relating to the valuation of natural gas derivative contracts. The plea is part of a joint investigation with the United States Attorney’s Office for the Southern District of New York and the New York Office of the Federal Bureau of Investigation into natural gas trading losses at the Manhattan branch of BMO. As part of the joint investigation, the defendant also pled guilty in United States District Court for the Southern District of New York to conspiracy, wire fraud, making false bank entries, and obstructing a federal regulatory investigation. The United States Attorney’s Office also announced the indictment and arrest of a former broker and CEO of Optionable Inc., an energy derivatives brokerage firm in Westchester County, New York.

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