SFO arrests two in hedge fund dawn raids

SFO arrests two in hedge fund dawn raids
The Serious Fraud Office swooped on two hedge fund managers in a dramatic dawn-raid in connection with an investigation at British-based Weavering Capital.
By Louise Armitstead
Telegraph, 15 May 2009

Magnus Peterson, chief executive of Wavering, a London-based hedge fund, was arrested by officers from the City of London Police at his home in Kent, and brought to Bishopsgate police station in the capital for questioning. Another senior colleague was arrested at his home in Surrey.

The police, who arrived with search warrants, seized computers, papers and other hardware from both men's houses. It is thought to be the first time British hedge fund managers have been arrested in connection with the SFO. The men were questioned for several hours before being released without charge.

Mr Peterson, the former head of trading for SEB, the Swedish bank, set up Weavering in 1998. His wife is on also on the board while fund's research director is James Stewart, a well-known economic commentator.

Weavering's flagship $639m (£445m) Macro Fixed Income fund was liquidated in February after it failed to meet investors' demands for withdrawals.

PriceWaterhouseCoopers was called into help wind down the fund. In the process apparent irregularities were discovered in a series of interest-rate swap deals between Weavering in the Cayman Islands and a company registered in the British Virgin Islands.

It was found that Mr Peterson's stepfather and brother were directors of the BVI firm. Investors believe this should have been disclosed in accordance with Irish stock exchange rules where the fund was listed.

PwC has said that the swap arrangements between the Cayman Islands and BVI companies were common, but that the "related party" ownership structure was not. The accountancy firm called in the SFO.

PWC and MCR, another firm appointed as joint liquidators, are probing whether the fund's losses were a result of normal trading or whether money had been misappropriated.

Investors, who were told by Mr Peterson at the time that he was "urgently" investigating the irregularities, have been left dismayed. They are bracing themselves for losses of hundreds of millions of dollars in the wake of the collapse of the hedge fund.

In April a court order was obtained to freeze the assets of Mr Peterson. As well as a large country house in Kent, the Swedish-born financier also has a London flat which is registered at Companies House.

He is thought to own various properties in Sweden and France. His investments in companies across Europe were also understood to be included in the asset freeze.

The case is being carefully watched by regulators in Europe and America in the wake of strong political demands to clamp-down on hedge funds, derivatives and tax-havens.

While there have been several high-profile fraud cases among hedge funds in America, Mayfair managers have insisted that the FSA's regulation is far more effective than the Securities & Exchange Commission's.

However, the Wavering investigation will add fuel to the case being pushed in Europe to bring all hedge funds under the radical terms outlined by a recent European Commission directive.

The SFO and MCR declined to comment. Mr Peterson could not be reached for comment.