Another Hedge Fund Bites the Dust Amid Suspicious Activity

The Financial Times reports that Weavering Capital collapsed over a $637 million derivatives position.  If this were just another unfortunate gamble on a derivatives contract that blew up in Weavering's face, the news would've never hit the FT.  Who really cares about another small hedge fund forced to close its door due to bad bets on the market?  This particular derivatives trade, however, was transacted with an offshore entity that was controlled by the fund's founder and chief executive, Magnus Peterson.  Trading with yourself?  Never a good idea, but at least you always come out a winner.  COO Chas Dabhia, one of the few involved in the fund that was not related to Mr. Peterson, discovered the dubious trade a week ago, froze Weavering's flagship fund and called in PwC to investigate.  The fund was put into liquidation yesterday by administrators when it was determined that the claims on the trade could not be paid.  The head of hedge fund restructuring at PwC said that he could not comment on who at Weavering put the trade in place or what it was for.  I'm pretty sure even my toddler can tell you what it was for.

Although this is a small hedge fund, the story of its demise is curiously similar to the Madoff scandal in several ways.  First, the fund had posted "solid returns" of 10-12% a year for the past five years.  Second, the problem was triggered by investor requests to withdraw funds that could not be met.  Finally, on the board of the UK company were a bevy of relatives of Mr. Peterson's including his wife, his brother and stepfather.