RegulationOct 30 2014

Hedge fund manager left investors £370m poorer

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A hedge fund manager who left investors £370m out of pocket persuaded a financier into pouring his clients’ cash into a doomed scheme, Southwark Crown Court has heard.

Magnus Peterson, founder of Weavering Capital, left the massive deficit after his firm collapsed following the global banking crisis.

Peterson, 51, convinced intermediary company Ermitage Ltd that his second company Macro Fund was a solid choice with little risk to investors.

But he blew 20 per cent of his entire account “within a few days” of disastrous trading, jurors heard.

Peterson disguised the extent of his dreadful losses by writing IOU notes to, and making private or ‘over-the-counter’ trades between, the two firms he ran, cutting deals with himself.

The Swede allegedly extracted hundreds of thousands of pounds from his hedge fund “for his own and his family’s benefit”.

Peterson forged relatives’s signatures, made dud deals and lied to auditors to prop up his ailing firm, the court heard.

Richard Hallos, who worked as a hedge fund analyst at Ermitage Ltd at the time, said that Macro Fund appeared to be a safe investment.

The financier had promised clients the special “option overlay”, which meant they could never lose or gain more than 5 per cent of their investment.

Ermitage first invested in the hedge fund on 1 October 2007, just nine months before the collapse of global bank Lehman Brothers rocked the financial world.

Ermitage invested in Macro Fund on behalf of investors and Mr Hallos started monitoring the fund in 2008.

In notes written from his meetings with Peterson in March of that year, Mr Hallos wrote that the fund had quite a simple approach and the fund’s performance had been good.

But by October Mr Hallos said Macro Fund was promising there was a £35m “redemption in the pipeline” to be paid to investors as they scrambled to retrieve their cash.

“At this point in time it was a very difficult environment and the markets had gone down a lot in September, so a lot of people had lost a lot of money, and during a time like that clients may decide: ‘Crikey, I need to get my money out of these funds,’” Mr Hallos added.

In a meeting held in January 2009 it emerged redemption requests would not be honoured in full, jurors were told.

“This was quite serious. It seemed the fund couldn’t pay its investors back, and this was quite unexpected,” said Mr Hallos.

Peterson used the Macro Fund to carry out the fraud between 2003 and 2009, it is said. The fund attracted millions of dollars in investors’ cash, all of which it lost when it crashed owing US$600m dollars.

Amanda Pinto, QC, for the Serious Fraud Office, said the losses stemmed from “dishonesty”, not “bad luck or incompetence”.

Rather than cut his losses, he started trading with WCF, jurors heard. Peterson allegedly covered up wild swings in the trades on the exchanges with sham trades with another firm, Weavering Capital Fund, that he owned and ran. But his trading strategy failed, and within a few days of trading on the exchanges he had lost over 20 per cent of the whole value of Macro Fund.

If the deals had been real, contractual paperwork was “confusing, completely silent or simply missing”, the court heard.

As market turmoil grew in the credit crunch of the late 2000s, investors began to seek the return of their money. Struggling to raise the funds, Peterson began a Ponzi-like scheme to cheat his clients, using fresh investors’ cash to pay off the rest.

Peterson, of Kent, denies seven counts of fraud by false representation, three counts of fraudulent trading, two counts of furnishing false information, two counts of forgery, one count of fraud by abuse of position and one count of obtaining a money transfer by deception.

The trial continues and is set to last 12 weeks.