MF Global Settles Lawsuit Related to 2008 Wheat Loss

MF Global Holdings Ltd., the futures broker headed by former New Jersey Governor Jon Corzine, reached a preliminary agreement to settle a shareholder lawsuit filed over a $141.5 million wheat loss in 2008 by one of the firm’s employees.

The company will contribute $2.5 million to a $90 million settlement with shareholders who purchased the stock between July 2007 and February 2008, New York-based MF Global said in a U.S. regulatory filing today. The brokerage didn’t admit liability and the deal must receive court approval, the company said. It is still seeking insurance coverage against the loss, MF Global said.

Man Group Plc, the former parent company of MF Global, said today it was contributing $32.5 million of the remaining $87.5 million of the settlement.

Evan Brent Dooley was indicted by a federal grand jury in Chicago last year on 16 counts of wire fraud and two violations of the Commodity Exchange Act for making bad wheat futures trades as an employee at the Memphis, Tennessee, office of MF Global. Shares of the broker plummeted 28 percent on Feb. 28, 2008, when the company disclosed the Dooley loss and announced his dismissal. The drop was the biggest since the shares’ initial public offering in 2007.

MF Global fell 8 cents to $8.34 as of 10:21 a.m. in New York Stock Exchange composite trading.

Unauthorized Trading

The firm missed a chance in January 2008 to stop Dooley from his unauthorized trading, which eventually helped start a slide that wiped out $3 billion in shareholder equity.

Dooley is accused of persuading MF Global to open a trading account in his name and acting as his guarantor by misrepresenting his financial condition on an account application, according to the 2010 indictment. Dooley replied that the first trading in January 2008 was unintentional, according to the indictment.

Memphis branch officials uncovered the first of Dooley’s two unauthorized overnight trades on Jan. 28, 2008, which netted him a profit of about $37,000, according to the indictment. The local managers took little action to prevent Dooley from repeating his rogue trading, according to allegations brought against MF Global by the Commodity Futures Trading Commission in a December 2009 agency proceeding.

MF Global paid $10 million to resolve the December CFTC probe into the Dooley incident and two other matters concerning failures of supervision, it said, without admitting or denying the CFTC’s allegations.

To contact the reporter on this story: Matthew Leising in New York at mleising@bloomberg.net.

To contact the editor responsible for this story: Alan Goldstein at agoldstein5@bloomberg.net.

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