The Memphis Wheat Trader Who Tried to Fool the Market
Less than a month after Jerome Kerviel blew a $5 billion hole in Societe Generale, another rogue trader popped up on the other side of the Atlantic. This one was not at a fancy French bank in Paris. He was sitting in Memphis, Tennessee, betting on wheat. Chapter 31 of Torsten Dennin’s “From Tulips to Bitcoins” tells how one guy at MF Global secretly built a $1 billion position against wheat, got absolutely crushed, and brought his entire firm to its knees.
MF Global: Bigger Than You Think
MF Global was spun out of Man Financial Group in 2007. If you have not heard of it, that is understandable. Most people outside finance had no idea how big this company was. But it was massive. MF Global handled over 3 million futures and options positions with a face value of more than $100 billion. Their customers made up roughly 30% of all trading volume on the Chicago Mercantile Exchange.
That is not a small operation. That is one of the world’s largest futures brokers.
The company’s CEO was Jon Corzine. If that name sounds familiar, it should. Corzine had been chairman of Goldman Sachs. Before that, he served as governor of New Jersey. This was a serious firm run by a serious name in finance. Or at least that was the image.
Wheat Was Already on Fire
To understand how badly things went wrong, you need to know what was happening with wheat at the time. Remember the Australian drought from a few chapters ago? That story did not end when the rain came back. Wheat prices were already elevated. By November 2007, wheat was trading at $7.50 per bushel. Then it broke $8. Then $9. Then $10.
If you read the chapter on Australia’s Millennium Drought, you saw wheat go from boring to vertical. That was still going on. And in February 2008, things got even more extreme.
On February 27, 2008, wheat prices moved 25% in a single day. They dropped to $10.80 at one point, then shot up to $13.50. Kazakhstan had just announced export taxes on wheat, which meant even less supply hitting the global market. Wheat was a rocket and nobody knew where the top was.
Into this chaos walked Evan Dooley with a very, very bad idea.
The Man in Memphis
Evan Dooley had been working at MF Global since November 2005. His job was in the Memphis, Tennessee office. And at some point, he decided he knew better than the market.
While wheat prices were climbing higher and higher, Dooley bet in the opposite direction. He thought wheat was going to come down. Maybe he had reasons. Maybe he was looking at charts that told him prices were overdone. We do not really know what was going through his head. What we do know is what he did.
He started building a short position in wheat futures. And he kept building it. Not small. Not “let me test this thesis with a few contracts” small. He built a position of around 15,000 wheat futures contracts. That is the equivalent of about 2 million metric tons of wheat.
The total value of his position was somewhere between $800 million and $1 billion.
And nobody at MF Global authorized it.
The Market Does Not Care About Your Opinion
Here is the thing about betting against a commodity that is going up because of real supply shortages. You can be right about the long-term direction and still lose everything in the short term. Wheat did not care that Evan Dooley thought it was overpriced. Wheat kept going up.
Every tick higher on the wheat price meant more losses on Dooley’s short position. And when you are short 15,000 futures contracts, even a small move adds up to big money fast. Wheat was not making small moves. It was making huge moves. That 25% swing in a single day on February 27th was the kind of volatility that wipes out positions.
MF Global discovered the unauthorized position and had no choice but to close it. They had to buy back all those wheat futures at prices far above where Dooley had sold them.
The Damage
The loss was approximately $140 million. To put that in context, it was about four times what MF Global had earned in profit the entire previous quarter. One trader in Memphis erased a full year of profits in a matter of hours.
MF Global’s stock dropped more than 25% on the news. That is a quarter of the company’s market value gone because one person was allowed to build a billion-dollar position without anyone noticing.
Dooley was fired immediately. MF Global was hit with a $10 million fine from regulators. And Dooley himself was eventually sentenced to five years in federal prison and ordered to repay the $140 million.
Five years for losing $140 million. If you think about the ratio of prison time to dollars lost, rogue traders get off pretty easy compared to people who steal much smaller amounts.
The Bigger MF Global Story
This is where it gets really interesting. The Dooley incident was embarrassing, but it did not kill MF Global. The company survived and kept operating. It was the events three years later that finished it off.
In 2011, MF Global reported a quarterly loss of $192 million. Then came the real scandal: client funds disappeared. Money that belonged to customers, that was supposed to be segregated and untouchable, was gone. The firm collapsed. It filed for bankruptcy with more than $40 billion in assets, making it the eighth largest bankruptcy in United States history.
Jon Corzine, the former Goldman Sachs chairman, the former governor, was at the center of it. The man who was supposed to be the adult in the room presided over one of the most spectacular financial collapses of the decade.
So when you look back at the Dooley incident in 2008, it was really just an early warning sign. The risk management at MF Global was broken long before the company went under. The $140 million loss should have been a wake-up call. Instead, it was just the first of many disasters.
What Stays With Me
Dennin puts this chapter right after the wheat price explosion and the platinum crisis. The timing matters. In early 2008, commodity markets were going wild. Wheat was breaking records. And in that kind of environment, traders get bold. Some get too bold.
Three things stand out to me here.
First, the size of the position relative to Dooley’s authority. He was a trader in the Memphis office. Not a senior portfolio manager in New York. Not a chief risk officer with a mandate to take big bets. A guy in Memphis who somehow managed to build a billion-dollar position without setting off a single alarm. What kind of risk controls allow that?
Second, the timing. This happened less than a month after Jerome Kerviel’s $5 billion loss at Societe Generale made headlines around the world. Every brokerage and bank on the planet should have been checking their books for unauthorized positions. Every risk manager should have been on high alert. And yet Dooley was still able to do what he did. The industry never learns as fast as it should.
Third, the MF Global ending. The company survived one rogue trader in 2008 and then blew itself up three years later on an even bigger scale. The $140 million loss was a symptom. The disease was a culture where risk controls were treated as suggestions, not rules. When client funds started disappearing in 2011, the pattern was already there if you knew where to look.
The wheat market eventually came back down. Prices always do. But Dooley was not around to see it. He was in a federal prison, owing $140 million he would never be able to repay. And MF Global, the firm that was supposed to be one of the pillars of the futures industry, was bankrupt.
One trader. One commodity. One very bad bet. And the market, as always, did not care.
Based on Chapter 31 of “From Tulips to Bitcoins” by Torsten Dennin (ISBN: 978-1-63299-227-7, River Grove Books, 2019).
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