The founder of one of London’s oldest hedge funds, which collapsed at the height of the financial crisis, has been found guilty of a fraud that prosecutors said lost $600m of investors’ money “not because of bad luck or incompetence but dishonesty”.
Weavering’s Magnus Peterson, 51, was found guilty on eight counts — including fraud by abuse of position, furnishing false information and forgery — by a jury on Monday at Southwark Crown Court in what will be a pre-election boon to the prosecuting agency, the UK’s Serious Fraud Office. He was acquitted of seven other counts including fraud by false representation.
His conviction — which the jury returned after six days of deliberation — comes after London’s High Court found against him and other defendants in 2012 in a $450m civil case brought by Weavering’s creditors that left Mr Peterson with a bankruptcy order. It was that earlier court decision which pushed the SFO, under the threat of judicial review, to reopen its file against Mr Peterson after the agency decided in 2011 to close its original case because it thought there was little chance of a conviction.
It is one of the first hedge fund prosecutions of its kind to arise out of the 2008 financial crisis.
Swedish-born Mr Peterson — who personally made £7m between 2005 and 2009 off the back of performance fees tied to the macro fund, the jury was told — will be sentenced on January 23. He has been remanded in custody ahead of sentencing.
He had been charged originally by the SFO with 16 counts. One count of furnishing false information was subsequently struck out during trial leaving 15 counts to be tried by the jury.
“Mr Peterson was acquitted of half of the charges brought against him by the SFO and we will look carefully at the verdicts to consider the jury’s overall view of the offending. While it clearly reflects the jury’s rejection of much of Crown’s case that will be no comfort to Mr Peterson and his family who will be bitterly disappointed by the outcome,” said Matthew Frankland, Mr Peterson’s solicitor.
Weavering imploded in March 2009 after it was discovered that the main assets of its flagship exchange-traded macro fund were $637m in swaps trades with an offshore company also controlled by Mr Peterson, called Weavering Capital Fund.
The jury heard that when the macro fund — marketed to investors as low-risk, low-return — started to lose money from the very earliest days of its inception in 2003, Mr Peterson started to trade secretly through “pretend transactions” with WCF, and failed to inform its investors or the macro fund’s directors; “robbing Peter to pay Paul”, as Amanda Pinto QC described it in court.
To further his fraud, he forged the signatures of his father-in-law and brother, the directors of the macro fund and WCF respectively, on ISDA agreements that governed the forward-rate agreements at the centre of the scam, the SFO said.
The stakes in the 10-week trial were high for both Mr Peterson and the SFO, which has been trying to recast itself as a tough prosecutor of complex financial crime, and which is fighting against attempts to revive Home Office plans to fold it into a wider crime-fighting agency.
Already the case had thrown a light on the agency’s dysfunctional past, with the former director Richard Alderman — under whose tenure the investigation had first been conducted — in the unusual position of having to take the stand during pre-trial hearings. Mr Alderman gave evidence after Mr Peterson attempted to have his case thrown out of court for an abuse of process over the SFO allegedly not following proper protocol when officially accepting the Weavering case for investigation.
Mr Alderman’s testimony revealed chaotic mismanagement, and he admitted that a key document that purportedly delegated responsibility for case acceptance to his chief executive could not be found.
Timeline: the fall of Weavering
March 2009 Weavering Fixed Income Fund, known as the macro fund, is put into administration.
April 2009 Administrators of Weavering Capital sue founder Magnus Peterson for alleged fraud against the management firm and the macro fund, which was listed on the Irish Stock Exchange, in London’s High Court.
May 2009 The UK’s Serious Fraud Office makes its first arrests in its investigation into the collapse.
August 2011 The Grand Court of the Cayman Islands hands down a $111m judgment against the directors of the macro fund, Mr Peterson’s stepfather and brother, for allegedly failing in their director duties. The judgment is appealed, with a decision still pending.
September 2011 The SFO drops its investigation, citing little chance of conviction.
October 2011 Trial in the civil case begins in High Court.
May 2012 Mrs Justice Proudman hands down a $450m judgment against Mr Peterson, his wife, and two other directors of the management firm. Armed with this decision, the creditors push the SFO under threat of judicial review to look again at the case.
July 2012 The SFO, under the new directorship of David Green, reopens its investigation.
October 2012 Mr Peterson is declared bankrupt.
December 2012 The SFO charges Mr Peterson.
October 2014 Criminal trial begins at Southwark Crown Court.
January 19 2015 Jury convicts Mr Peterson on eight of 16 counts. Sentencing is set for Friday.