Friday, March 20, 2009

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.      


mrbogue said...

This is absolutely horrible and it seems to be occurring almost daily. I think investor confidence will never return to the state it was in 2006-2007 for a very, very long time.

Paper said...

True, investor confidence has been beaten down and people are even more skeptical of 'the market' now than ever before.

I'm concerned that this will be forgotten far too soon, as the feds are relentlessly hounding big corporate, but the hedge fund industry isn't in the news enough for the evil they've done.

Also, the cozy relationship between that unregulated, dubious hedge fund trader and the SEC hasn't been explored enough.

In my view, the unregulated hedge fund industry did the bidding of the regulated banking industry for years and all was good and they were allowed to flourish with very few obstacles until they turned on their masters - and ate them (lehman, bear, et al)

The retail investor needs new advocates because the old ones sold us out.


Anonymous said...

I would like to see some arrests over this.

Their minimum investment requirements were $500,000, bound to be accumulatively a lot of peoples life savings.

A clearer case of fraud you could not get.

Magnus Peterson was trading with himself.

This is despicable and unless action is taken to bring people like this to justice - there will certainly be no return of investor confidence any time soon.

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