The encyclopedia · Trading & Investing · Operational decision · 2007–2008
The BMO natural gas trader who blew $680M — and faked his books for a bonus
David Lee and Kevin Cassidy lost $680M at Bank of Montreal in unauthorized natural gas trades. Lee then faked the books to hide it.
Bank of Montreal · 2007-04-27
What happened
David Lee was a natural gas trader at the Bank of Montreal (BMO) in Calgary. In 2007, Lee and his supervisor Kevin Cassidy made a series of unauthorized natural gas derivative trades that went badly wrong. By the time the losses were discovered, the bank had lost CAD $680 million — one of the largest trading losses in Canadian history.
Rather than reporting the losses, Lee fraudulently mismarked his trading book to hide the extent of the damage. The mispricing was intended to increase his year-end bonus by making the trades appear profitable. The fraud was uncovered during a routine internal audit in April 2007, when BMO's risk management team noticed discrepancies in the valuation of Lee's natural gas positions.
Lee was fired immediately and charged by Canadian authorities. In November 2008, he pleaded guilty to fraud for intentionally mismarking his trading positions. He was ordered to pay a $500,000 fine by the CFTC and faced a prison sentence of 18 months. Cassidy was also fired and settled with regulators. The scandal forced BMO to restate its 2006 financial results and led to a comprehensive overhaul of its risk management systems for commodities trading.
Why it happened
- BMO's natural gas desk had weak position limits and no independent verification of the trader's pricing — Lee could mark his own book with no one checking the numbers.
- Lee's bonus was tied to reported profits, creating an incentive to hide losses rather than report them — the compensation structure rewarded the fraud.
- The audit that caught Lee was routine, not targeted — the bank's risk management was relying on luck to detect unauthorized trading.
The lesson
When a trader marks his own book and his bonus depends on the result, the bank is not managing risk — it is hoping for honesty. Independent price verification is the minimum, not the ideal.
Aftermath
The BMO trading loss was one of the largest in Canadian banking history. David Lee was banned from commodity trading in Canada for five years. Kevin Cassidy settled CFTC charges and was banned for three years. The case highlighted the dangers of allowing traders to self-report valuations without independent verification — the same weakness that had enabled losses at Barings, Daiwa, and AIB. BMO overhauled its commodities risk management and tightened position limits on its trading desks.
Sources
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