(Dow Jones) — A former commodities trader for MF Global Holdings Ltd. on Tuesday admitted guilt in a rogue trading episode that rocked the brokerage firm nearly five years ago and set in motion the events that led to its collapse.
Evan Dooley, previously an “associated person” in the Memphis, Tenn., office of MF Global, pleaded guilty Tuesday to futures trading violations in 2008 that drove a $141 million loss for MF Global, according to authorities.
Mr. Dooley, whose trades jostled prices in wheat markets in February 2008, couldn't immediately be reached for comment. His lawyer didn't respond to a request for comment.
The episode triggered senior management changes at MF Global and raised red flags over its internal risk controls, ultimately leading to the arrival of private equity investor J. Christopher Flowers, who helped in 2010 to install former New Jersey Gov. Jon Corzine as MF Global's chief executive. Mr. Corzine's outsized bets on European sovereign debt a year and a half later contributed to the firm's October 2011 collapse.
Mr. Dooley, of Olive Branch, Miss., admitted to two counts of exceeding government limits on speculative commodity trading, according to a statement from the U.S. district attorney for the Northern District of Illinois. Mr. Dooley, 44 years old, is due to be sentenced in March and faces a maximum sentence of 10 years in prison and a $1 million fine. He has also agreed to pay restitution to MF Global, which filed for bankruptcy Oct. 31, 2011.
As an employee with access to MF Global's system used for entering futures orders, Mr. Dooley used this Feb. 26, 2008, to buy and sell nearly 32,000 wheat futures contracts, according to a plea agreement released Tuesday by the U.S. government.
By 6 a.m. Central time the following morning, Mr. Dooley had piled up an approximate 16,000-contract position, amounting to an $872 million wager that wheat prices would fall in trading on the Chicago Board of Trade.
The position was nearly three times the legal limit allowed under U.S. futures law, according to Tuesday's plea agreement. Prices of the contracts shot higher throughout the morning as Mr. Dooley tried to unwind his position, confusing traders at the futures exchange.
“At the start of the trading session, defendant knew that he had a negative balance of approximately $3,000 in his account at MF Global and intended that the risks associated with his trading activity be borne directly and solely by MF Global,” authorities wrote in the plea agreement.
MF Global officials took control of Mr. Dooley's account that morning and liquidated the remainder of his position, leaving the firm with a $141 million loss, according to the document. Mr. Dooley was fired afterward, and MF Global was ordered by regulators to step up risk management controls.
MF Global, at one time the world's largest nonbank futures brokerage, saw its share price fall 93{8a1275384cb93b18aa3d41af404144e37302a793dec468d70d54c97b65cfac05} following news of the rogue trades. Then-Chief Executive Kevin Davis left the company in the fall of 2008 and was replaced by Bernard Dan, a former CEO of the Chicago Board of Trade.
Mr. Dan resigned in a March 2010 management shuffle that brought aboard Mr. Corzine, a former Goldman Sachs Group chairman, as CEO.
Source: Dow Jones
Posted by Haylie Shipp
