U.S. regulators have charged a former Bank of Montreal trader, David Lee, with improperly valuing the bank’s natural gas options book and deceiving the bank.

The Federal Reserve Board on Tuesday announced the issuance of a consent order of prohibition against Lee, a former managing director of the commodities trading group and institution-affiliated party of the Chicago branch of the Bank of Montreal.

Lee, without admitting to any allegations, consented to the issuance of the order based on “his alleged participation in unsafe and unsound banking practices, breaches of fiduciary duty and violations of law, in connection with his natural gas options trading activity at BMO,” the Fed said in a release.

The Fed’s order asserts that “Lee allegedly compromised the independent price verification process BMO relied on to ascertain the true value of his trading book, and also executed and then misvalued exchange of options for options trades in order to conceal the true value of his book, which led to after-tax losses to the bank of at least $327 million (CDN).”

In addition, the U.S. Attorney for the Southern District of New York and the District Attorney for New York County announced Tuesday that Lee has agreed to plead guilty to criminal charges relating to this matter.

The Commodity Futures Trading Commission and Securities and Exchange Commission also separately announced the filing of civil lawsuits in related matters.

The CFTC complaint alleges that Lee unlawfully mis-marked his natural gas options positions between at least May 2003 and May 2007 and misvalued 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.

IE