A former city hedge fund manager has been convicted following the Serious Fraud Office’s (SFO) investigation into the collapse of Weavering Macro Fixed Income Fund Ltd.
Ulf Magnus Michael Peterson, 51, a Swedish national of Otham, Kent was the founding director of Weavering Capital (UK) Ltd and the former investment manager of the Weavering Macro Fund. Following a three-month trial, Peterson was found guilty by a Jury at Southwark Crown Court of eight counts of fraud, forgery, false accounting and fraudulent trading.
The SFO’s investigation focused mainly on a number of interest rate swap trades between the Weavering Macro Fund and another offshore company, Weavering Capital Fund Ltd, which Peterson also owned and controlled.
Over the six years in which the fund operated, Peterson used the swap trades to inflate artificially the Macro Fund’s investment performance, and thereby mislead investors as to its true value. The reported value of the fund grew increasingly to depend on the bad debt generated by the swap trades with the related counterparty to the point that, when it collapsed in March 2009, its entire net worth was based on those valueless swaps.
Over a six-year period, investors were misled into putting US$780 million into the Macro Fund, which was marketed as a low risk and liquid fund primarily engaged in exchange trading. When investors began asking for their money back in December 2008 following the worldwide financial crisis, there were no real assets to fund any repayments.
Unable to pay back investors, the Macro Fund ceased trading on the Irish Stock Exchange in March 2009 and liquidators were then appointed. Net losses to the investors were approximately US$536 million.
Throughout the fund’s existence, Peterson rewarded himself handsomely from investors’ monies to the value of £5.8 million between 2005 and 2009. While Peterson knew full well what the true value of the fund was when it collapsed, his investors did not. To them, the extensive losses they suffered came as a complete shock.
Commenting on the verdict, SFO director David Green CB QC said: “I would like to thank all those who assisted us with this highly complex international investigation, including investors, auditors, liquidators, the Irish Stock Exchange, the City of London Police and overseas law enforcement authorities, without whose assistance we could not have built this challenging case.”
This is one of the first hedge fund prosecutions of its kind to arise out of the 2008 financial crisis. The SFO is grateful for the assistance it received from authorities in the British Virgin Islands, Cayman Islands, Germany, Luxemburg, Republic of Ireland, South Africa, Sweden and Switzerland.
The defendant, who has been remanded in custody, will be sentenced at Southwark Crown Court on Friday 23 January 2015.
Further details of the case
The trial before Justice Andrew Smith began on 13 October 2014 and the Jury was sent out to consider its verdict on 9 January 2015.
The value of the alleged fraud was approximately US$536 million and the offences are said to have taken place between July 2003 and March 2009.
The SFO’s enquiries involved liaising with approximately 50 different entities including the Irish Stock Exchange.
Weavering Capital (UK) Ltd was an English incorporated investment management firm that went into administration on 19 March 2009. Its primary function was to act as investment advisor to a Cayman Islands incorporated hedge fund, Weavering Macro Fixed Income Fund Limited. Liquidators were appointed over the Macro Fund on 19 March 2009. WCUK had its offices in Mayfair, London.
Peterson was charged on 11 December 2013 and attended his first court appearance at Westminster Magistrates’ Court on 7 January 2014.
A majority verdict of 10-2 was delivered for Count 1. All other verdicts were unanimous.
Peterson was convicted of:
*Count 1: Furnishing false information contrary to Section 17(1) (b) of the Theft Act 1968
*Count 3: Fraudulent trading contrary to Section 458 of the Companies Act 1985
*Count 4: Obtaining a money transfer by deception (Section 15A of the Theft Act 1968)
*Count 5: Forgery contrary to Section 1 of the Forgery and Counterfeiting Act 1981
*Count 6: Forgery contrary to Section 1 of the Forgery and Counterfeiting Act 1981
*Count 8: Fraud by abuse of position contrary to Sections 1 and 4 of the Fraud Act 2006
*Count 14: Fraud by false representation contrary to Sections 1 and 2 of the Fraud Act 2006
*Count 16: Fraudulent trading contrary to Section 993 of the Companies Act 2006
Peterson was acquitted of one count of fraudulent trading and five counts of fraud by false representation.
An additional charge (Count 7) of furnishing false information was withdrawn from the Jury by the Judge prior to verdict on 9 December and a formal ‘Not Guilty’ verdict entered.