Dishonesty Led to $600 Million Hedge Fund End: Prosecutor

Weavering Capital (UK) Ltd. founder Magnus Peterson’s deliberate “dishonesty” caused the collapse of his $600 million hedge fund, U.K. prosecutors told a London court on the trial’s opening day.

Peterson told investors he was following a low-risk strategy, but within a few days of its start the fund had lost more than 20 percent of its value, according to Amanda Pinto, a lawyer for the Serious Fraud Office. Rather than stopping, he changed the strategy and lied to investors, she said, disputing that it was due to “bad luck or incompetence.”

Peterson is accused of fraudulent trading, forgery and fraud by false representation alleged to have taken place between 2003 and 2009. He pleaded not guilty to all counts today. Weavering Capital, described in court as the Macro Fund, collapsed in March 2009 after it was discovered the counter-party for its biggest trading position, Weavering Capital Fund Limited BVI, was also controlled by Peterson, according to the prosecution.

Peterson’s plea “has shown his commitment to fighting these allegations,” said Matthew Frankland, a lawyer for the Swedish-born hedge fund manager.

Peterson encouraged new investors to put money into the fund right up until 2009 so that he could use it to pay redemptions to existing investors, Pinto told the jury. She said Peterson made seven million pounds ($11.1 million) for himself.

“Peterson didn’t just hide the truth; he actually forged numerous documents,” said Pinto. No money changed hands as Weavering Capital Fund Limited BVI “wrote the Macro Fund bigger and bigger IOU’s.”

The trial is scheduled to last 12 weeks.

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