MF Global Holdings Ltd. missed a chance in January 2008 to stop the broker whose unauthorized trades a month later cost the firm $141 million and helped start a slide that wiped out $3 billion in shareholder equity.
Evan Brent Dooley, 42, of Olive Branch, Mississippi, was indicted by a federal grand jury in Chicago earlier this week on 16 counts of wire fraud and two violations of the Commodity Exchange Act for making bad wheat futures trades as an employee at the Memphis, Tennessee, office of New York-based MF Global, a futures and options broker.
Memphis branch officials uncovered the first of Dooley’s unauthorized overnight trades on Jan. 28, 2008, which netted him a profit of about $37,000, according to the indictment. The local managers took little action to prevent Dooley from repeating his rogue trading, according to allegations brought against MF Global by the
Commodity Futures Trading Commission in a December agency proceeding.
Dooley was told that the trading “was ‘out of line’” in an e-mail from his supervisor, who discussed the incident with Dooley and forwarded the e-mail to the Memphis branch manager, according to the CFTC.
“The supervisor and the branch office manager took no further action concerning the incident and did not escalate the issue to MF Global’s compliance department or management,” the CFTC said. Dooley “continued to use the electronic trading platform and kept the trading profits.”
Twenty-nine days later, Dooley would again trade wheat futures overnight from his account, this time losing $141 million, or 6 percent of MF Global’s equity at the time.
MF Global spokesman Jeremy Skule said the branch manager and Dooley’s supervisor, whose names haven’t been disclosed, are no longer with the company. He declined further comment and referred to the company’s comments from yesterday.
“We applaud the U.S. Attorney’s Office and grand jury for indicting Mr. Dooley and support their efforts to bring him to justice,” MF Global spokeswoman Maria Gemskie said yesterday in a phone interview.
Dooley will plead not guilty at his arraignment, which hasn’t been scheduled, his lawyer Keri Ambrosio said today in a telephone interview.
“We are going to request the evidence” against Dooley, which hasn’t yet been provided, Ambrosio said. “I’m looking forward to seeing what the government has.”
MF Global shares plummeted 28 percent on Feb. 28, 2008, when the company disclosed the Dooley loss and announced his dismissal, their biggest drop since their initial public offering in 2007.
Eighteen days later, on March 17, the stock plunged an additional 65 percent on investor fears that clients were pulling money from the firm. The company’s shares closed at $29.28 the day before the Dooley disclosure, giving the firm a market capitalization of $3.51 billion.
Over the next nine months, investor concern about the company’s risk management, missed earnings and confusion over how it would refinance its debt sent the shares to an all-time low of $1.73 on Nov. 20, 2008. At that point the company was valued at $207.6 million, representing a loss of more than $3 billion in shareholder value.
The company’s woes in 2008 cost its long-time chief executive Kevin Davis his job. He resigned in October 2008 after 17 years with MF Global, replaced by Bernard Dan, the former chief executive officer of the Chicago Board of Trade.
MF Global is now on its third chief executive since 2008. Jon Corzine, the former New Jersey governor who ran
Goldman Sachs Group Inc. from 1994 to 1999, took over from Dan last month.
Dooley is accused of persuading MF Global to open a trading account in his name and acting as his guarantor by misrepresenting his financial condition on an account application, according to the indictment. Dooley replied that the first overnight trading activity in January was unintentional, according to the indictment.
Each wire fraud count carries a maximum penalty of as much as 20 years’ imprisonment. The Exchange Act violations are each punishable by as much as five years in prison.
MF Global paid $10 million to resolve the December CFTC probe into the Dooley incident and two other matters concerning failures of supervision, it said, without admitting or denying the CFTC’s allegations.
The case is U.S. v. Dooley, 1:10-cr-00335, U.S. District Court, Northern District of Illinois (Chicago).
