LONDON (Reuters) - Magnus Peterson, the boss of collapsed hedge fund business Weavering, has been found guilty of defrauding investors and ordered to pay hundreds of millions of dollars in damages.
London’s High Court ruled that Peterson, manager of the Weavering Macro Fixed Income fund, deceived clients and breached his duty of care to investors with a strategy that could not cope with the vagaries of markets at the height of the global credit crisis.
Damages of $450 million were awarded against Peterson, seated next to a fellow defendant when the judgment was handed down on Wednesday, and three other directors including his wife, Amanda.
The outcome comes a day after Britain’s Financial Services Authority doled out a record fine to Italian academic-turned-fund manager Alberto Micalizzi, as authorities step up efforts to chase errant hedge fund bosses out of the Square Mile.
“I do not accept Mr. Peterson’s assertions that the investors understood his strategy very well. He cannot show any document in which he explained it,” Judge Sonia Proudman wrote in her judgment on Wednesday.
Britain’s Serious Fraud Office dropped probes into both Micalizzi and Peterson in recent years, raising questions over London’s ability to uncover and punish white collar crime.
The SFO claimed that there was not “a reasonable prospect of conviction” in the Weavering case and quit its investigation into Micalizzi citing a lack of evidence.
Proudman said that Peterson, who represented himself throughout the case, may have committed the fraud “out of a sense of invincibility, self-belief, and a gambler’s mentality.”
Three other directors at the fund firm -- Edward Platt, Charanpreet Dabhia and Amanda Peterson -- were also found guilty of negligently permitting fraud to happen.
Liquidators of Weavering, which inflicted hundreds of millions of losses on investors, launched a civil case against Peterson and other Weavering staff last year after Britain’s Serious Fraud Office dropped its probe into the 2009 collapse.
Throughout the case Peterson denied lying to investors.
The case centered on more than $600 million of interest rate swap agreements between the Macro fund and a British Virgin Islands company called Weavering Capital Fund (WCF), which was related to Weavering.
Robert Anderson QC, representing the liquidators, alleged Peterson misled investors by concealing the fund’s investments in the swaps.
Proudman said the swaps were never intended to be enforceable instruments but were a “sham” used to manipulate net asset value (NAV) figures to give investors the impression the Macro fund was successful.
During the case Anderson said WCF had made a number of investments at the end of 2008 to try and bolster its balance sheet in case questions were raised about its ability to honor swap agreements it entered into with the Macro fund.
According to Anderson, these investments included 50 pounds in a music and video technology company called MVM Limited which Peterson valued at $37.25 million, and an 810,000 pound investment in a firm called Lobo Gris valued at $4.47 million.
Lobo Gris was owned by one of Peterson’s friends and was going to make a documentary about Adolf Hitler if he had survived World War II, but went into administration in 2010, Anderson said.
Jones Day partner Barnaby Stueck, who represented the liquidators, said in a statement after the judgment that Weavering’s investors believed Peterson should not be allowed to escape with mere bankruptcy.
“They will be asking the Serious Fraud Office to reconsider its decision not to proceed with the criminal investigation given these very clear findings,” he said.
The SFO, which has seen its budget cut by 34 percent since 2008-2009, dropped its two-and-a-half-year probe last year.
This came just days after a Cayman Islands civil court awarded damages of $111 million against two of Weavering’s fund directors, Stefan Peterson and Hans Ekstrom -- Magnus Peterson’s younger brother and stepfather respectively.
Writing by Sinead Cruise; Editing by David Cowell