Hedge fund CEO "manipulated" returns from 2003

Fri Oct 28, 2011 2:07pm EDT

Related Topics

* Peterson accused of backdating performance

* Peterson denies using swaps to hide losses from investors

* SFO dropped probe last month

By Laurence Fletcher

LONDON, Oct 28 (Reuters) - The manager of Weavering Macro fund, the hedge fund whose credit crisis collapse prompted an investigation by Britain's Serious Fraud Office, "cynically manipulated" its performance from as early as 2003, a court heard on Friday.

The liquidators of Weavering's UK operation began a civil case in London's High Court last week for fraud and breach of duty against Magnus Peterson, Weavering's founder and CEO, and other employees.

The case comes a little over a month after the SFO dropped its two-and-a-half-year probe, which was launched after the Macro fund was found to have more than $600 million in interest rate swaps where the counterparty was a firm called Weavering Capital Fund that was related to Weavering.

Robert Anderson QC, representing the liquidators, alleges Peterson used swaps with Weavering Capital Fund, a British Virgin Islands company, to hide hundreds of millions of dollars in trading losses from investors -- a claim that Peterson denies, saying that the swaps were part of a hedging strategy.

According to Anderson, the Macro fund made a trading loss of around 19 percent in August 2003, its first month of trading, but that this became a 3 percent profit after Peterson backdated its performance.

Peterson did this by sending a fax to Weavering's offices from his home at 11:26pm on Monday Sept. 1 2003 -- into the next calendar month of performance -- detailing a trade that the Macro fund had made with Weavering Capital Fund.

"What that shows is cynical manipulation, after the event, of the trading ... for that month to pretend that the Macro fund had made a profit," Anderson said.

"It is only because you had the ability, in the comfort of your home, just before midnight, three days after trading for the month finished, to put on these two trades which you knew had a guaranteed profit."

Peterson, who is defending himself, said that managers were still "finding our feet" in the early stages.

He added: "We didn't have all the routines in place... It was probably after exchange hours on the Friday (and) we wanted to hedge the position."

Anderson also said that Peterson hid the existence of Weavering Capital Fund from investors.

"I suggest none of the investors ... (were) told prior to March 2009 ... that WCF was active and there was sustained and substantial OTC trading between the Macro Fund and WCF," he said.

According to the liquidators, swaps with WCF accounted for more than 100 percent of the Macro fund's net assets by 2009.

The liquidators also allege that Weavering took nearly $45 million in fees between the fund's launch in 2003 and its collapse in 2009.

The UK case comes after a Cayman Islands court ruled in a civil case between the fund's liquidators and two directors that Peterson had committed fraud and that the fund had made "fictitious" transactions to inflate assets and conceal losses.

The court awarded damages of $111 million against two of the fund's directors, Stefan Peterson and Hans Ekstrom -- Magnus Peterson's younger brother and stepfather respectively. The judgement said Ekstrom signed minutes for board meetings that never took place.

The High Court case continues.

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