Weavering Chief Orchestrated $600 Million Fraud, Lawyer Says

The founder of Weavering Capital (UK) Ltd. was the “chief architect of a $600 million hedge-fund fraud” as he hid losses from investors and falsely inflated the fund’s value, a lawyer for the fund’s administrators said.

Magnus Peterson “attracted hundreds of millions of dollars from investors” by marketing the Weavering Macro Fixed Income Fund Ltd. as an easily liquidated fund with low risk, a lawyer for the administrators of the fund, Robert Anderson, said at the first day of a civil trial in London today seeking to recoup losses from Peterson and other former Weavering employees.

The fund collapsed in March 2009, and Peterson and Edward Platt, his deputy investment manager, were arrested by the U.K. Serious Fraud Office, which investigates white-collar crime. The SFO decided last month not to bring charges because it didn’t think it could win a conviction.

Peterson told investors the fund had returns of as much as 12 percent per year, with a diversified portfolio of exchange- traded futures and options, based on the macroeconomic research of James Stewart, the fund’s then chief economist, Anderson said.

After the fund lost money on Peterson’s options trades, he sought to hide the losses with fraudulent swaps investments. When the fund collapsed, administrators discovered that the counterparty for the Macro fund’s biggest trading position was controlled by Weavering.

Market Turbulence

“The fraud was discovered when investors sought to withdraw their money following the market turbulence of 2008,” Anderson said. “The reported value of the fund consisted solely of the worthless swaps.”

A swap is an exchange of interest-rate exposures from floating to fixed and vice versa.

MCR, Weavering’s administrator, is also suing Peterson’s wife, Amanda, and Platt. The Petersons, both derivatives traders, met while they were working at the Swedish bank Skandinaviska Enskilda Banken AB in London in the 1980s. Amanda Peterson, who was also an employee of Weavering, “ought to have uncovered and reported the fraud,” Anderson said.

Platt “was certainly involved in the fraud, and intimately so,” by forging documents and lying to investors, Anderson said.

The defendants will present their arguments later in the trial. A spokeswoman at Stephenson Harwood, Amanda Peterson’s law firm, declined to comment on the lawsuit. Magnus Peterson and Platt are representing themselves in the case.

Barnaby Stueck, a lawyer for MCR, said last month there is “a devastating weight of evidence against Mr. Peterson.” He said he disagreed with the outcome of the SFO investigation. MCR liquidator Geoffrey Bouchier said it was “deeply disappointing to Weavering’s investors and creditors.”

A Cayman Islands court found Peterson’s brother and stepfather liable for neglecting their duties as directors of the Macro Fund and awarded damages of $111 million to investors in the case in August, lawyers for MCR said.

To contact the reporter on this story: Lindsay Fortado in London at lfortado@bloomberg.net

To contact the editor responsible for this story: Anthony Aarons at aaarons@bloomberg.net

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