LONDON The manager of Weavering Macro fund, the hedge fund whose credit crisis collapse left investors with hundreds of millions of dollars of losses, lied to clients and massively wrote up the value of assets, a court heard.
The liquidators of Weavering's UK operation began a civil case in London's High Court last month for fraud and breach of duty against Magnus Peterson, Weavering's chief executive and manager of its Macro fund, and other employees.
The case centres on more than $600 million (375 million pounds) 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.
The liquidators say WCF was controlled by Peterson and used 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.
Robert Anderson QC, representing the liquidators, alleges that Peterson "continually and royally misled" investors by concealing the fund's investment in the swaps.
"Investors pick up that there are interest rate swaps in the (fund's) accounts, they're then sent more up-to-date financial information, which doesn't show any interest rate swaps, and when they ask where the swaps have gone, you lie to them and tell them they are all closed out," he said on Tuesday.
Anderson said that in response to one investor request for a breakdown of the Macro fund's positions in early 2009, Peterson had said the fund had 80 percent of assets in exchange-traded securities and 20 percent in over-the-counter securities.
"This was manifestly untrue," said Anderson, who said the swaps at that point accounted for more than 100 percent of the Macro fund's assets.
Peterson, who denies lying to investors, said he gave a "very, very rough gross asset exposure," adding "this whole trial is a reflection of how differently we all look at exposure".
He also said that by telling investors the positions were closed out he had meant that they were fully hedged, not that the fund did not hold the positions.
Anderson also says WCF made a number of investments at the end of 2008, around the time that Lehman collapsed, to "try to bolster the balance sheet ... in case anybody ever started asking questions" about WCF's ability to honour its swap agreements with the Macro fund.
Anderson said Peterson valued an investment of 50 pounds in a music and video technology company called MVM Limited at $37.25 million.
"That seems rather optimistic, because ... the last set of audited accounts for MVM were to 31 May 2008, which showed ... it had liabilities of 100,000 pounds," Anderson said.
Anderson said Peterson valued an 810,000 pound investment in a company called Lobo Gris at $4.47 million. The firm 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 18 months ago, Anderson said.
Peterson said MVM had "gone very far in discussions with Nokia of putting (its) technology into their phones", while Lobo Gris "was looked upon then as something that could be extremely successful".
"All of the investments we see were ... forecast to be phenomenally profitable, although ended up making no money whatsoever," Anderson said.
Last week Anderson told the court that Peterson had "manipulated" the fund's performance from 2003 -- a claim Peterson denies.
The case comes a little over a month after the SFO dropped its two-and-a-half-year probe, saying there wasn't "a reasonable prospect of conviction".
The High Court case continues.
(Reporting by Laurence Fletcher; Editing by Jon Loades-Carter)