A former city hedge fund manager was today, 19 January 2015, convicted following the Serious Fraud Office's investigation into the collapse of Weavering Macro Fixed Income Fund Ltd.
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 Mr Peterson also owned and controlled.
Over the six years in which the fund operated, Mr 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 appointed. The net losses to the investors were approximately US$536m.
Throughout the fund's existence, Mr Peterson rewarded himself handsomely from investors' monies, to the value of £5.8 million between 2005 and 2009. Whilst Mr 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, Director of the SFO, 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, 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 to 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 will be sentenced at Southwark Crown Court on 23 January 2015. He has been remanded in custody.