In New Hampshire Insurance Co., et al., v. MF Global, Inc., Index No. 601621/09 (Sup Ct, NY County, Oct. 5, 2010), Justice Bernard J. Fried granted summary judgment to MF Global, Inc. (“MF Global”), formerly one of the world’s largest non-bank futures brokerages, paving the way for it to collect on an insurance claim covering a $141.5 million loss it suffered when a rogue broker made unauthorized overnight wheat trades in 2008. The court found that the broker, Evan Dooley (“Dooley”), was an “associated person” to MF Global, and, thus, was an employee of MF Global by law. Therefore, insurers could not refuse to cover MF Global’s loss based on the contention that Dooley was not actually an employee covered under the primary insurance policy (the “Policy”). The court further found the losses sustained by MF Global as a result of Dooley’s unauthorized trades were “direct losses” as required under the Policy.
The case stemmed from a situation that shook investor confidence in MF Global and resulted in heavy losses and an overhaul of management. Dooley executed large, unauthorized overnight trades on wheat futures contracts through the Chicago Mercantile Exchange (“CME”). During the evening of February 26, 2008, Dooley built up a large and unauthorized position in wheat commodities in anticipation of a fall in prices, trading well in excess of his margin. He entered into a large number of “sell contracts” for various commodities, thus creating an “open position” that could be liquidated by entering into corresponding “buy contracts.” If the market price for the commodity drops, Dooley could purchase the commodity for less than the price of the sell contracts and, thus, the difference would be booked as a trading gain.
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