The conviction of hedge fund manager Magnus Peterson on Monday marks a winning end to a long-running probe by the U.K.’s Serious Fraud Office.
In the U.K.’s first prominent hedge fund manager conviction since the credit crisis, a jury found the Swedish financier who ran Weavering Macro Fund guilty on eight counts of fraud, forgery, false accounting and fraudulent trading.
Investors lost around $536 million when Cayman Islands-based Weavering, which was sold as a fund that produced low-risk, stable returns, collapsed in 2009. The fund’s entire net worth was found to consist of interest-rate swaps where the counterparty was a company based in the British Virgin Islands controlled by Mr. Peterson himself, according to the SFO.
The verdict comes almost six years after the agency launched its first investigation into Weavering’s collapse. The SFO searched Mr. Peterson’s house and made two arrests but dropped the case in 2011, saying that there was no reasonable prospect of a conviction.
That surprised many in Britain’s hedge fund and legal industry, coming just days after a court in the Cayman Islands ordered two of the fund directors to pay $111 million in damages. The Cayman Islands judge found that director Hans Ekstrom, Mr. Peterson’s elderly stepfather, had signed off minutes for board meetings that never happened.
The SFO eventually reopened its probe the following year, but only after Weavering’s liquidators had brought a separate, civil case and were awarded damages against Mr. Peterson, his wife and two others.
“It is an important case, we can’t downplay that,” said Jane de Lozey, joint head of fraud at the SFO, at a briefing last week ahead of the judgment. “We can’t hide, it’s one of the highest-profile cases.”
However, Mr. Peterson was acquitted of one count of fraudulent trading and six counts of fraud by false representation.
Mr. Peterson, who ran Weavering out of London’s upmarket Mayfair district, took 5.8 million British pounds ($8.8 million) in fees while his wife earned a further £2.7 million, according to the SFO.
In one of the counts on which Mr. Peterson was found guilty, toward the end of the fund’s first month of trading in 2003, he was said to have faxed through a forward rate agreement between the main Weavering fund and his British Virgin Islands -based firm. This transformed a 19% loss for the month into a small profit.
“We say from the beginning it’s a fraud,” said Jonathan Midgley, case controller at the SFO at last week’s briefing.
Assets in Mr. Peterson’s British Virgin Islands company included a technology company that the SFO said was “valueless,” a West End musical and a firm that began making a documentary about Adolf Hitler if he had survived World War II.
In another count, Mr. Peterson was found to have forged an ISDA agreement—a standard agreement used by funds when buying over-the-counter derivatives—backdating it by more than a year.
“The SFO will be pleased to see a successful conclusion to this long-running story,” said Peter Astleford, a partner at law firm Dechert. “It will not bring back any lost money but it will bring a small smile of satisfaction to the faces of the victims.”
In September, The Wall Street Journal reported that Weavering’s liquidators had sold Mr. Peterson’s house—a thatched property in rural Kent dating from the 17th century—as part of their efforts to recoup the $450 million in damages they were awarded in the civil case.
Mr. Peterson will be sentenced later this week.
Perhaps settling out of court is a wiser stratagem for Advisors .
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