A rogue trader at MF Global Ltd. rang up $141.5 million in losses on the broker's account this week, the company said Thursday, a black eye that cost the company almost a fifth of its market value.
The Bermuda-based broker said on Wednesday morning it discovered Evan Dooley, a trader at the company's Memphis, Tenn., branch, trading wheat contracts in amounts that exceeded how much he was allowed to trade.
MF Global fired Dooley and liquidated the wheat contracts, which led to a $141.5 million loss. An entry-order system that should have blocked the trades failed, the company said.
Attempts to locate an Evan Dooley in the Memphis area for comment were unsuccessful.
MF Global brokers options and futures contracts for 130,000 clients at 70 exchanges like the Chicago Mercantile Exchange, the Chicago Board of Trade and the New York Mercantile Exchange. The company said the trading loss does not threaten the $19.5 billion clients have in their accounts.
Credit Suisse analyst Howard Chen said the loss translates to about 72 cents per share, which is nearly half MF Global's expected profit for the year. The company said the loss represents about 6 percent of its capital.
MF Global's stock plunged about 20 percent in afternoon trading Thursday.
Dooley had bought a few thousand lots of wheat futures contracts on the Chicago Board of Trade, MF Global said. The price of wheat has surged in the past month because of constraints to global supply and swelling demand from China.
Chief Executive Kevin Davis said Dooley did not have nearly enough cash to support such a big position, and the computer system should have nixed the trade.
"This is an absolutely awful event, but we believe it was an aberration in our risk control," Davis said on a conference call. "We are deeply, deeply upset that this has happened, but we believe we've fixed it and it will never happen again."
Davis said the company has certain insurance policies that may cover the loss, but he cannot confidently say the losses will be recouped through insurance.
CME Group Inc., which runs the Chicago Board of Trade, released a statement Thursday confirming MF Global "has met and continues to meet its obligations," and remains a member in good standing.
The Commodity Futures Trading Commission, the regulatory body that oversees MF Global's trading, said the company is in compliance with capital requirements.
Credit Suisse's Chen said the incident sullies MF Global's reputation for managing risk, which Davis described as "glittering." Most of the company's past mistakes have been small, Chen said, and the size of this loss is troubling.
"The magnitude of the loss is clearly disconcerting to us and calls into question the degree of risk-taking and risk management at the franchise," he said.
This news comes weeks after Jerome Kerviel, a trader at Societe Generale, rang up more than $7 billion in losses on his company's account by placing unauthorized bets on European stock indexes.
MF Global's former parent company, Man Group, split MF Global into an independent company through a public offering of the division's stock in July.