Feb. 28 (Bloomberg) -- MF Global Inc., the largest broker of exchange-traded futures and options, set aside $141.5 million to cover losses by an employee who ``substantially exceeded'' his own account's trading limits betting on the wheat market.

The company's shares fell 28 percent, the biggest drop since their July debut, after the firm said broker Evan Dooley made ``unauthorized'' trades in wheat futures yesterday morning. The Hamilton, Bermuda-based company said it was obligated to settle the trades. Dooley, who worked in Memphis, Tennessee, was dismissed, the brokerage said.

MF Global, led by Chief Executive Officer Kevin Davis, is at least the second firm this year to attribute trading losses to the illicit activities of a single employee. Societe Generale SA, France's second-biggest bank, said Jan. 24 that trader Jerome Kerviel lost 4.9 billion euros ($7.4 billion) by taking positions on European stock market indexes and then falsifying documents and e-mails to pretend the bets were hedged. Kerviel says the company was aware of his actions.

``All it takes is somebody with enough understanding of how these trading, settlement and risk-management systems fit together and where the gaps are to create a problem,'' said Adam Honore, an analyst at Boston-based financial services consulting firm Aite Group LLC. ``SocGen was another example, and this is not going to be the last.''

Dooley, 40, joined MF Global in November 2005, according to firm spokeswoman Diana DeSocio. He was associated with at least six companies, including one called Dooley Trading Co., before moving to MF Global, regulatory records show. A voicemail left by Bloomberg News on a phone number listed under his name in Memphis wasn't returned.

Turbulent Markets

Volatility in U.S. wheat futures has surged as prices more than doubled in the past year on the Chicago Board of Trade, capped by unprecedented swings yesterday. Prices have been pushed up as the world's farmers have failed to keep pace with rising demand, eroding inventories. The rally fueled food inflation, leading to higher costs for Italian pasta, Japanese noodles, French baguettes and Kellogg Co. cereals.

Wheat rose the most ever yesterday to the seventh record high this month, then fell by the exchange-imposed daily limit before rising again by the maximum allowed. The 25 percent rally from the day's low to its high was bigger than all but seven annual price increases for wheat since 1973.

Dooley was able to exceed his trading limits because electronic controls in an MF Global retail order-entry system weren't operating, MF Global CEO Davis said on a conference call with analysts today. As a result, Dooley amassed ``significant positions'' in his own account that were ``liquidated'' yesterday morning, the company said in a statement.

Bonus Cuts

``This is an absolutely awful event, but we believe it was an aberration,'' Davis, 47, said on the conference call. The firm shored up risk controls and will cut bonuses for senior managers to lessen the impact on shareholders, he said.

The company's after-tax loss may be about $80 million, and there's ``a chance'' that insurance may cover some or all of the firm's costs from the incident, Davis said. The loss amounts to about 6 percent of the brokerage's total equity, according to the company's statement. The firm's capital and liquidity ``remain strong,'' the statement said.

Davis said the company is in ``close contact'' with regulators, credit raters and exchanges. MF Global fell $8.09 to $21.19 at 4 p.m. in New York Stock Exchange composite trading. The shares are down 33 percent this year.

`Isolated Event'

MF Global, formerly the brokerage unit of Man Group Plc, the world's largest publicly traded hedge fund manager, was spun off in a $2.92 billion initial public offering in July. Man Group, based in London, retained an 18.6 percent stake in the company.

The Commodity Futures Trading Commission is collecting information and monitoring the situation, the regulator said in a statement. MF Global's loss ``appears to be an isolated event,'' the agency said.

CME Group, owner of the world's largest futures exchange, issued a statement today ``concerning firm proprietary trading activity in the wheat futures market.'' CME said MF Global ``has met and continues to meet its obligations'' and ``remains in good standing as a clearing member of the exchange.''

-- With reporting by Edgar Ortega and Samar Srivastava in New York; Heather Smith in Paris; Nandini Sukumar and Tom Cahill in London; and Jeff Wilson and Tony Dreibus in Chicago. Editors: Otis Bilodeau, Gregory Mott

To contact the reporter on this story: David Scheer in Washington at dscheer@bloomberg.net.

Last Updated: February 28, 2008 17:15 EST