The Cayman Islands Court of Appeal has dismissed an appeal brought by a former investor in the failed Weavering Macro Fixed Income Fund against an order requiring it to repay more than US$8 million in redemption proceeds it received shortly before the fund’s collapse.
Weavering’s liquidators brought proceedings against Skandinaviska Enskilda Banken AB seeking the return of redemption proceeds paid to the Swedish bank on the basis that they represented preferences over Weavering’s other creditors.
At first instance, Justice Nigel Clifford found in favor of the liquidators, and ordered SEB to repay the redemption proceeds in full. In a written decision handed down last week, the Court of Appeal reaffirmed the preferential nature of the payments and again rejected a number of defenses put forward by SEB.
Mourant Ozannes partner Shaun Folpp, who acted for Weavering’s liquidators said, “The Court of Appeal’s decision is to be welcomed, and reinforces the policy behind much of the Cayman Islands’ insolvency regime, which is to restore value to a company for the benefit of its creditors.”
The initial action was part of a wider effort to recover assets of the fund for the benefit of all investors. It was one of the first successful attempts by liquidators of a Cayman fund to return payments that gave preference to an investor over other creditors at a time when the fund was insolvent.
There are additional proceedings under way against other investors seeking the return of a further US$82 million in redemption payments made by Weavering in the months leading up to its failure.
The Weavering fund collapsed in March 2009 when it was unable to pay investors who attempted to redeem their investments after the financial crisis in December 2008. The failure prompted an investigation by the U.K. Serious Fraud Office. It found that during the six years the fund operated, principal investment manager Magnus Peterson used fictitious interest rate swap trades with companies he controlled to cover up losses and inflate the fund’s investment performance.
When the $780 million Weavering Macro Fund unraveled, its net worth was based largely on the valueless swaps, even though it had been marketed as a low risk and liquid fund primarily engaged in exchange-based trading.
A U.K. court found Peterson guilty of eight counts of fraud, forgery, false accounting and fraudulent trading. He is serving a 13-year prison sentence.