* Magnus Peterson found guilty on eight counts
* Could be jailed for up to 10 years; sentencing on Jan. 23
* Investors lost $536 million (Adds quotes, background, detail)
By Kirstin Ridley and Nishant Kumar
LONDON, Jan 19 (Reuters) - The boss of collapsed UK hedge fund Weavering could be jailed for up to 10 years after being found guilty of fraud by a London court on Monday, giving Britain’s Serious Fraud Office (SFO) one of its most senior financial scalps since the credit crunch.
Magnus Peterson, 51, was found guilty of eight counts of fraud, forgery, false accounting and fraudulent trading and was acquitted on seven other charges after a 12-week trial that delved into the complex world of hedge fund investing. The fraud cost investors $536 million.
“Whilst Mr Peterson knew full well what the true value of the fund was when it collapsed, his investors did not. To them, the extensive losses they suffered came as a complete shock,” the SFO said in a statement.
Peterson has been remanded in custody and will be sentenced on Jan. 23, the SFO said.
Swedish-born Peterson, a charismatic former interest rate and foreign exchange trader, pitched his flagship fund to institutions and wealthy individuals as a low-risk investment offering stable returns.
But he was found guilty of covering up rising trading losses by weaving a web of deception that unravelled in March 2009, six months after the bankruptcy of Wall Street’s Lehman Brothers sent panic through global markets and prompted investors to clamour for redemptions. Weavering could not pay up.
The SFO, which investigated trades between the Weavering Macro Fund and Weavering Capital Fund (WCF), an offshore company owned by Peterson, said the fund manager artificially inflated his fund’s investment performance and misled investors into putting $780 million into the Macro Fund over a six-year period.
He was found not guilty of one count of fraudulent trading and six counts of fraud by false representation.
“The verdicts returned by the jury clearly show that they rejected much of the SFO’s case, but we will need to consider the position very carefully,” said Matthew Frankland, Peterson’s lawyer. “Regrettably, winning much of the case is of no comfort to Mr Peterson in all the circumstances.”
The SFO said the fund failed because its net asset value had been grossly inflated by sham over-the-counter interest rate swaps with WCF.
However, British Virgin Islands-based WCF really only existed on paper, prosecutors said. It had small stakes in ventures such as a failed stage musical. By 2003 it had no external investors, no administrator and no auditors.
When the Macro fund collapsed, the bulk of its assets were found to be $600 million of interest rate swaps with WCF as the counterparty, alongside $260 million of unpaid redemptions.
Prosecutors said the swaps were designed solely to flatter the Macro fund’s paper accounts, allowing it to attract more investors and Peterson to pay himself millions in performance fees. The swaps, however, were worthless.
Peterson paid himself 5.8 million pounds ($8.8 million) between 2005 and 2009, the SFO statement said.
The Weavering business was a family affair. Peterson’s wife Amanda was a director of Mayfair-based Weavering Capital UK (WCUK), which acted as investment adviser to WCF and the Macro fund. His stepfather and brother were Weavering Macro Fund directors.
Peterson’s conviction is a welcome victory for the SFO, which was lambasted for dropping its investigation in 2011, citing no reasonable prospect of conviction. The case was re-opened under new head David Green shortly after liquidators won a civil suit against Peterson. ($1 = 0.6601 pounds) (Additional reporting by Carolyn Cohn; Editing by David Clarke and David Goodman)