Other People’s Money

With Congress’ having taken on Goldman Sachs unethical behavior yesterday, I thought readers might be interested in U.S. Attorney Patrick Fitzgerald’s indictment of a wheat trader who is accused of using his company’s money to feather his own nest.  Starting with $438, he made $37,000 using other people’s money on “wheat futures valued at approximately $872 million.”

When his account was liquidated by F Global, there was a “loss of $141,021,489.”

The press release follows:

MEMPHIS AREA MAN INDICTED FOR CAUSING MF GLOBAL TO LOSE
$141 MILLION ON UNAUTHORIZED TRADES OF WHEAT FUTURES
CONTRACTS AT CHICAGO BOARD OF TRADE IN 2008

CHICAGO — A suburban Memphis man was indicted on federal fraud charges for allegedly causing $141 million in trading losses to his clearing firm after executing large, unauthorized overnight trades on wheat futures contracts through the Chicago Board of Trade in 2008.

The defendant, Evan Brent Dooley, an “associated person” in the Memphis office of MF Global, Inc., traded on his own account through the CME Globex electronic trading platform, knowing that he placed trading orders exceeding his ability to pay for potential losses resulting from those trades, according to an 18-count indictment returned yesterday by a federal grand jury, Patrick J. Fitzgerald, United States Attorney for the Northern District of Illinois, and Robert D. Grant, Special Agent-in-Charge of the Chicago Office of the Federal Bureau of Investigation, announced today.

Dooley, 42, of Olive Branch, Miss., was charged with 16 counts of wire fraud and two counts of violating the Commodities Exchange Act’s speculative position limits.  He will be arraigned at a later date in U.S. District Court in Chicago.

According to the indictment, Dooley was an associated person with MF Global, who was allowed to trade on his own account as well as for clients, from September 2006 to February 2008 and transmitted orders from computers located in both MF Global’s Memphis office and his home.

Dooley allegedly induced MF Global to open a trading account and act as his financial guarantor by providing false information about his financial condition on his account application.  Dooley stated that he had a liquid net worth of $250,000; $50,000 in cash; $150,000 invested in a business; total liabilities of $30,000; and a total net worth of $220,000, knowing that his assets were substantially less, the indictment alleges.

During the overnight trading session starting on Jan. 27, 2008, Dooley executed a series of large buy and sell orders for approximately 1,500 wheat futures contracts, even though he did not have the financial ability to cover potential losses.  (Each wheat futures contract called for the delivery of 5,000 bushels of wheat.)

At the start of the session, Dooley had approximately $482 in his MF Global account and intentionally shifted the risks of his trading activity onto MF Global, according to the indictment. At one point, Dooley’s trading position  was “long” by approximately 673 contracts on March 2008 wheat futures worth approximately $32 million.  At the close of the overnight trading, he liquidated his position and realized a gross profit of approximately $37,000.

On Jan. 28, 2008, an MF Global representative advised Dooley that his overnight trading was “out of line,” exceeded the deposits in his account and put MF Global at risk of incurring losses.  Dooley allegedly told MF Global that his trading activity resulted from an error and was not intentional in order to maintain the firm as his financial guarantor, as well as his access to the CME Globex electronic trading platform.

During overnight trading starting on Feb. 26, 2008, Dooley allegedly executed a series of large buy and sell orders for approximately 31,964 wheat futures contracts, knowing that he did not have the ability to pay for potential losses.

At the start of the session, Dooley had a negative balance of approximately $3,000 in his MF Global account.  During the trading session, Dooley established a substantial “short” position and by 6 a.m. on Feb. 27, 2008, he was short 16,174 contracts for May 2008 wheat futures valued at approximately $872 million.  During the same session, Dooley also traded contracts for March, July and December wheat futures, causing his overall position to exceed regulatory limits for both a single month (May 2008) and for all months combined.

On the morning of Feb. 27, 2008, when the price for May 2008 contracts rose rapidly as Dooley attempted to liquidate his short position, Dooley again executed a series of sell orders, the indictment alleges.  By mid-morning, Dooley was short 17,181 contracts for May 2008 wheat futures and the price had gone “limit up” to approximately $13.495 per bushel.

When MF Global authorities learned of Dooley’s overnight trading, they deactivated his account and liquidated the remainder of his position, resulting in a loss of $141,021,489, which Dooley was unable to cover, according to the indictment.

The government is being represented by Assistant U.S. Attorney Daniel Collins.  The Commodity Futures Trading Commission assisted with the investigation.

Each count of wire fraud carries a maximum of 20 years in prison and each count of violating the Commodities Exchange Act carries a five-year maximum sentence.  Both offenses carry a maximum fine of $250,000 fine on each count and restitution is mandatory.  The Court may also impose a fine totaling twice the loss to any victim or twice the gain to the defendant, whichever is greater.  If convicted, the Court would determine a reasonable sentence to impose under the advisory United States Sentencing Guidelines.

An indictment contains only charges and is not evidence of guilt.  The defendant is presumed innocent and are entitled to a fair trial at which the government has the burden of proving guilt beyond a reasonable doubt.


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