Liquidators sue auditors
Britain’s Serious Fraud Office has charged Magnus Peterson, the founder of Weavering Capital, with fraud and forgery.
The six charges against Mr. Peterson, which include false accounting, fraudulent trading, forgery and fraud by abuse of position, come months after the SFO reopened an investigation into the collapse of $600 million hedge fund Weavering Macro Fixed Income Fund Limited.
The assets of the fund, which is registered in the Cayman Islands but was managed from London, were found to be $637 million in swap trades with an entity controlled by Mr. Peterson, a Swedish national.
The SFO abandoned an initial investigation in September 2011 but continued pressure by Weavering’s creditors and a change at the helm of the Serious Fraud Office caused the SFO to reopen its investigation in May.
In July, the British High Court awarded $450 million in damages against Mr. Peterson and three other directors including his wife in a civil action. The court stated the swap transactions by the fund were a sham used to manipulate the net asset value of the funds.
The case also caused ripples in Cayman’s hedge fund community when in 2011 two of the fund’s directors were ordered to pay damages of $111 million each by the Cayman Islands Grand Court in a civil action brought by the fund’s liquidators. The two directors, respectively the brother and stepfather of Mr. Peterson, were found guilty of wilful neglect or default in the discharge of their duties.
The case prompted widespread debate about fund governance standards in general and the role of directors of Cayman funds in particular.
In a writ filed on 30 November in the Grand Court of the Cayman Islands, the liquidators of the fund have also sued the auditors of the fund, Ernst & Young in the Cayman Islands and Ireland, for damages alleging “deceit”, “negligence” and “breach of the contracts of retainer”.
In a statement, Ernst & Young referred to the judgements which have found the directors of the fund guilty of wilful neglect in their responsibilities toward the fund. “Any audit depends to a substantial degree on the honesty and transparency of the management of the company being audited,” the audit firm said. Ernst & Young further stated it believes the proceedings are “ill-judged and unsubstantiated”.