Water torture at the hands of the U.S. Attorney

Tucked away in an unremarkable Friday afternoon Bloomberg story about MF Global was more than a few nuggets about the snail-paced water torture that the U.S. Attorney is putting Bank of Montreal (BMO:TSX, NYSE) through:

June 13 (Bloomberg) — MF Global Ltd., the futures broker that lost $141 million earlier this year on unauthorized wheat trades, said it has set aside $10 million for potential civil penalties from U.S. regulatory probes.

The company today disclosed two investigations into natural- gas trades it helped facilitate. The U.S. Attorney’s Office in New York is probing over-the-counter gas trades of a customer, the Bank of Montreal. In addition, the Commodity Futures Trading Commission sent a so-called Wells notice in May, saying it may recommend legal action over two natural-gas trades in 2004, according to MF Global’s regulatory filing.

The natural-gas trades related to Bank of Montreal are also being investigated by a New York County grand jury. An unnamed BMO trader, using a broker at MF Global, “allegedly mismarked his book,” MF Global said, meaning he entered incorrect or false trade data.

The Bank of Montreal last year lost $618 million in natural- gas trades, the largest loss ever by a Canadian bank. The bank said last May it had “increased concerns” about the reliability of quotes from its main broker, Optionable Inc. After increasing the size of its loss, BMO said it was investigating “whether any potential irregularities in trading and valuation took place,” according to a May 17, 2007 statement.

The CFTC and the U.S. Securities and Exchange Commission are also involved in the investigation, MF Global said. Neither MF Global nor its broker have been named as targets of the probe, the company said.

It has been over a year since BMO took a pasting on an outsized natural gas book. For whatever reason, the U.S. Attorney still hasn’t nailed down if there was fraud involved, and if so, by whom.

MRM
(disclosure – I own BMO)