Weavering Hedge Fund Founder Jailed 13 Years For Fraud

Weavering Hedge Fund Founder Jailed 13 Years For Fraud

Weavering Capital (UK) Ltd founder Magnus Peterson has been sentenced to 13 years in prison after he was found guilty of fraud by a London court this week.

This marks one of the longest sentences handed down for a high-profile fraud in the UK in recent times.

Peterson perpetrated fraud

Magnus Peterson is the founder of one of London’s oldest hedge funds. The UK’s Serious Fraud Office (SFO) charged the founder with several criminal offenses. As reported by ValueWalk, the case against the hedge fund began in 2009, when the fund was liquidated as it failed to meet client requests for redemption of capital. Though the SFO had originally closed the investigation, the SFO eventually reopened the investigation into the hedge fund.

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This week’s verdict brings to an end an almost six-year investigation by the UK’s SFO into the collapse of the $600 million hedge fund. Magnus Peterson told investors he was following a low-risk strategy. But when it resulted in losses, he tried to it cover up with worthless interest-rate swaps tied to a counter-party fund that he also controlled.

During the trial, the SFO said Peterson made 7 million pounds ($10.6 million) for himself over six years. According to the agency, the estimated loss to investors was about $530 million.

Weavering faltered twice

Magnus Peterson and other former Weavering employees lost a civil suit in 2012, which awarded the hedge-fund administrators $450 million. The hedge fund faltered twice with heavy losses before adopting a “low-risk” strategy in 2003.

According to the SFO, Peterson told investors he adopted a low-risk strategy and invested in exchange-traded futures and options. After the hedge fund lost money, Peterson sought to hide the losses through the interest-rate swaps with a notional value of about $637 million with an offshore company also controlled by Peterson, called Weavering Capital Fund.

Though Magnus Peterson was originally charged with 16 counts, one count of furnishing false information was subsequently struck out during the trial, leaving 15 to be decided by the jury. Some of the counts on which he was found guilty include forging an ISDA agreement—a standard agreement used by funds when buying over-the-counter derivatives—and faxing through a forward-rate agreement toward the end of the fund’s first month of trading that turned a 19% loss into a small profit.

After losing money from the very earliest days of its inception, the founder started to trade secretly through “pretend transactions” with WCF, and failed to inform investors or the macro fund’s directors, essetnially “robbing Peter to pay Paul”, as Amanda Pinto QC described it in court.

On Friday, Justice Smith sentenced Magnus Peterson to a 13-year stretch at Southwark Crown Court after the jury found him guilty of fraud, forgery and furnishing false information.

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