Weavering Founder A Liar, Lawyer Says

Nov 2 2011 | 9:07am ET

The liquidator of collapsed hedge fund Weavering Capital Management yesterday continued to hammer away at the firm's founder.

Magnus Peterson was little more than a serial liar who repeatedly inflated the values of Weavering's assets, lawyer Robert Anderson said in court yesterday. The liquidator has sued Peterson and several other Weavering employees over the 2009 collapse of the fund.

"Investors pick up that there are interest rate swaps in the accounts, they're then sent more up-to-date financial information, which doesn't show any interest rate swaps, and when they ask where the swaps have gone, you lie to them and tell them they are closed out," Anderson said. One on occasion, Anderson said, Peterson told an investor that 80% of the fund's assets were in exchange-traded securities, when in fact it was more than 100% in swaps.

Peterson "continually and royally misled investors," Anderson said, and not just about swaps. Anderson said Peterson continually made "rather optimistic" valuations of companies he had invested in.

"All the investments we see were… forecast to be phenomenally profitable, although ended up making no money whatsoever," he said. All were actually made with the intention of trying "to bolster the balance sheet… in case anybody ever started asking questions."

Peterson defended himself, arguing that his estimates about assets were "very, very rough" and a demonstration that "this whole trial is a reflection of how differently we look at exposure." He also rejected Anderson's read on the investments and valuations, one of which "was looked upon then as something that could be extremely successful."

Weavering collapsed in 2009 after an investigation found that more than 100% of its Macro fund's net assets were tied up in swaps with another Weavering entity. British regulators dropped their probe of Weavering last month, saying there was not a reasonable prospect of winning a conviction, but a Cayman Islands court in August slapped Peterson's younger brother and stepfather, both directors of the Weavering fund, with US$111 million in fines for fraud.

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