Magnus Peterson: The charismatic Swedish trader now facing years behind bars

Investors lost millions when Magnus Peterson's sham hedge fund spectacularly blew up. Now, after nearly getting away, they have justice.

The 2008 credit crunch sparked a surge of hedge fund collapses and huge losses for investors. And yet no individual had ever taken the rap for them.

That's changed, says Reuters, with the conviction on fraud charges of Magnus Peterson a "charismatic" Swedish-born former forex and interest-rate trader, who pitched his London-based fund, Weavering Macro Fund, as "a low-risk investment offering stable returns".

It proved to be anything but. The fund imploded in March 2009 after market panic prompted "investors to clamour for redemptions" and the fund could not pay up.

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It turned out that Peterson, 51, had been concealing rising losses dating back to the fund's inception in 2003, through a series of "pretend transactions" with an offshore company he owned (see below), says the FT. This complex web of deceptions eventually cost investors $536m.

They now have justice (if not recompense), but it was a close-run thing. A bungled investigation by the Serious Fraud Office (SFO) was dropped in 2011 on grounds that there was "no reasonable chance of conviction".

The SFO only reopened the case after liquidators won a $450m judgment in a civil suit against Peterson, his wife Amanda and two other directors in 2012.

At the end of that case, the judge remarked that Peterson who pocketed £7m between 2005 and 2009 from fees tied to the fund's supposedly stellar performance may have committed fraud "out of a sense of invincibility, self-belief, and a gambler's mentality".

He certainly possessed considerable chutzpah, says The Sunday Telegraph. On 14 September 2008 the day when "the financial crisis reached its apex" he was nonchalantly hosting a jamboree at the Italian Grand Prix at Monza.

The lavish entertainment laid on jarred with some of the investors. One later told a friend, "it suddenly seemed very big entertainment for what was actually a rather small hedge fund".

Born in Gothenburg, Sweden in 1963, Peterson joined Swedish bank SEB as an interest rate derivatives trader in 1987. Quickly singled out for his talents, he moved to London two years later and, by 1995, was "riding high" heading the bank's global proprietary trading desk.

He'd also met his wife, Amanda, "a talented government bonds derivative trader at the bank". The ambitious pair branched out alone, founding Weavering Capital in 1998 naming the firm after their Kent home village.

The timing was lousy. That year Long-Term Capital Management blew up, rocking the financial system and causing investors to flee hedge funds. But when their $50m fund eventually launched in 2000, it appeared to be an instant success, returning a staggering 139% in just ten months. Yet in June 2001 it imploded.

Subsequent investors in Weavering funds were never told about this track record. Had they taken a closer look, says The Sunday Telegraph, they would probably "have thought twice about investing".

How Peterson faked his profits

This firm acted as an investment advisor both to the Macro fund and a third, more mysterious company: the Weavering Capital Fund (WCF), which was based offshore in the British Virgin Islands and "really only existed on paper".

When the Macro fund collapsed in 2009, the bulk of its assets were found to be interest-rate swaps with a notional value of $637m, which "couldn't be redeemed or liquidated" because the counterparty was WCF, says Suzi Ring on Bloomberg.

Unbeknown to investors, Peterson had grossly inflated the net asset value of the Macro fund with these transactions occasionally forging the signatures of family members who were directors.

He had also used WCF to invest in private ventures without his investors' knowledge. These included a documentary based on the book Grey Wolf (which suggested that Adolf Hitler faked his suicide and fled to Argentina) and a production of the rock musical Spring Awakening.

Peterson's own spring awakening this year doesn't promise much. He faces up to ten years in jail after being convicted of eight counts of fraud, forgery, false accounting and fraudulent trading. "The stakes in the ten-week trial were high for both Peterson and the SFO," says Caroline Binham in the FT. Under a new director, the agency "has been trying to recast itself as a tough prosecutor of complex financial crime".

After notorious debacles including a fruitless and expensive pursuit of the Tchenguiz brothers it could ill-afford another bloody nose. It was a long time coming, say Ridley and Kumar, but Peterson's conviction is "a welcome victory for the SFO".