MF Global's loss deepens since trader's $145M goof

February 29, 2008

BY DAVID ROEDER Staff Reporter

On a down day for the stock market, the shares of MF Global were one of the biggest downers of all Friday. For the second straight session, shares of the futures brokerage took a beating because of a trading scandal.

MF, based in Bermuda, is dealing with the fallout from its admission that a trader lost $141.5 million in the volatile wheat market at the Chicago Board of Trade. It identified the trader as Evan Dooley of its Memphis, Tenn., office and said his trades were unauthorized.

The company said Dooley has been fired and that it has set aside $80 million to cover pre-tax losses on the trades. MF is the largest brokerage at the Board of Trade and the Chicago Mercantile Exchange.

CME Group Inc., parent of both exchanges, said MF has met all financial obligations and "remains in good standing" as a clearing member.

The new disclosure of rogue trading came Thursday and on Friday three analysts cut their rating on MF stock. The shares fell 17 percent, $3.64 Friday to close at $17.55. Thursday, the stock shed 28 percent of its value.

"We do not yet have confidence that there are no other lapses," said analyst Roger Freeman of Lehman Brothers Holdings Inc.

MF's chief executive, Kevin Davis, said Dooley amassed his positions because electronic controls weren't operating for the company's order-entry system. He called the incident an "aberration" and said the company has ample reserves to cover the losses.

MF said the losses represent about 6 percent of its equity and that it also has available $1.5 billion in credit.

Its the second recent incident of rogue trading to roil the markets. On Jan. 24, Societe Generale SA said trader Jerome Kerviel cost it $7.4 billion with bad and unauthorized bets on European stock indexes.

Dooley, 40, has been with MF since November 2005. According to regulatory records, he operated Dooley Trading Co. before joining MF.

Dooley could not be reached, but he told the Wall Street Journal that his computer systems were to blame.

Wheat futures have risen more than 40 percent this year at the Board of Trade on strong global demand and thin stockpiles. But Friday, wheat for March delivery fell about 8 percent to close at $10.73 a bushel on speculation farmers will increase planting to capitalize on near-record prices.

Dooley's trading occurred Wednesday morning, MF said. That day was extremely volatile in the wheat markets, with contracts falling and rising by a daily, exchange-imposed limit.

Rogue trader loses $141.5m betting on wheat

Rogue trader loses $141.5m betting on wheat
Commodities broker MF Global has sacked a trader after discovering a loss of $141.5 million (£71.3 million) representing six per cent of the company's equity.

MF Global, which was spun off from UK's Man Group last year, blamed a failure in one of the company's retail order entry systems which enabled the employee to trade in the wheat futures market in his personal account.

The US-based broker, named as Evan Dooley by newspapers, "substantially exceeded his authorised trading limit" according to the company.

MF Global said it is responsible for the loss and has recorded a bad debt provision for the full amount, emphasising that client funds will not be affected.

In addition, the company has hired a third-party risk technology consultant to review its relevant order entry systems.

Last month, French bank Societe Generale admitted one of its traders, Jerome Kerviel, made unauthorised trades for months before his huge losses were discovered.

Hepatitis C & Aids Investigation - Southern Nevada Health District

Hepatitis C Investigation

The Southern Nevada Health District is advising patients who received injected anesthesia medication at the Endoscopy Center of Nevada (700 Shadow Lane) of a risk for possible exposure to hepatitis C and other bloodborne pathogens. The health district is recommending patients who had procedures requiring injected anesthesia at the clinic between March 2004 and January 11, 2008, contact their primary care physicians or health care providers to get tested for hepatitis C as well as hepatitis B and HIV.