Ex-MF Global broker sentenced to 5 years for illegal trades

April 16, 2013 09:44 AM

Former MF Global Inc. broker Evan Brent Dooley was sentenced to 5 years in prison for making unlawful unauthorized trades that caused the now-defunct futures firm to lose more than $141 million in 2008.

The sentence, half of what the government sought, was imposed today by U.S. District Judge Robert M. Dow in Chicago. Dooley, 45, pleaded guilty in December to two counts of violating speculative position limits under the Commodities Exchange Act. Each count carried a maximum sentence of five years in prison. He was also sentenced to one year of supervised release and must pay $141 million in restitution. The judge initially said three years supervised release, then later corrected himself.

While Dooley was indicted in 2010, more than a year before the bankruptcy filing of brokerage parent MF Global Holdings Ltd., the incident was cited as an example of risk management weakness in a 124-page report released this month by trustee Louis Freeh analyzing the firm’s failure.

“MF Global suffered immediate and severe negative consequences from the Dooley incident,” which wiped out a year’s worth of profit, Freeh said. “In the aftermath of the Dooley incident, the company adopted a written framework for managing risk. This framework was never fully implemented.”

MF Global Holdings filed for bankruptcy in October 2011 after making a $6.3 billion wrong-way trade on its own behalf of the bonds of some of Europe’s most indebted nations. The company won final approval April 5 of its plan to repay creditors, paving the way for the eighth-largest bankruptcy in U.S. history to wind down under court protection.

Prosecutors asked Dow to impose a 10-year sentence and require full restitution to Freeh as trustee.

‘Enduring Harm’

“Defendant committed serious crimes that resulted in devastating, far-reaching, and enduring harm,” according to the sentencing memo filed April 9 by acting Chicago U.S. Attorney Gary Shapiro.

Keri Ambrosio, Dooley’s lawyer, asked for a sentence of probation and extended supervised release.

Dooley, of Olive Branch, Mississippi, worked in MF Global’s Memphis, Tennessee, office. He was associated with the New York- based firm from September 2006 to February 2008 and permitted to trade on his own account and for clients, according to prosecutors said in announcing his indictment in April 2010.

Patrick Fitzgerald, the Chicago U.S. attorney at the time, said 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.”

The case was brought in Chicago because the transactions were conducted through CME Group Inc.’s Chicago Board of Trade.

Wheat Futures

In an overnight session in January 2008, Dooley allegedly executed a series of large buy and sell orders for about 1,500 wheat futures contracts, according to the indictment. Each contract comprises 5,000 bushels.

While lacking funds to cover potential losses, he liquidated his position that night for a gross profit of about $37,000, prosecutors said. Confronted by an MF Global supervisor the next day, Dooley allegedly said the activity was inadvertent, according to the indictment.

A month later, with a negative $3,000 balance in his account, Dooley allegedly executed buy and sell orders for almost 32,000 contracts, including more than 24,000 for May 2008 wheat futures and, in the course of trading that night, exceeded positional limits set by the Commodity Futures Trading Commission.

He was unable to successfully liquidate his position.

Realize Loss

MF Global authorities learned of Dooley’s trading in February 2008, deactivated his account and liquidated the rest of his position, according to the indictment, realizing a loss of more than $141 million.

“Brent Dooley is not the usual offender appearing before the court,” Ambrosio, his lawyer, said in her filing. “He is college-educated, employed and a dedicated father of two daughters.”

Dooley, whose mother had died recently and whose wife had been diagnosed with breast cancer, was having difficulties making ends meet, Ambrosio said.

“Mr. Dooley panicked and acted out of desperation,” the attorney said. “He did not scheme to steal from MF Global.”

The case is U.S. v. Dooley, 1:10-cr-00335, U.S. District Court, Northern District of Illinois (Chicago).

Bloomberg News

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