Embattled fraud office reopens inquiry into hedge fund

SFO's new boss follows Libor move with another major investigation

Jim Armitage
Tuesday 10 July 2012 01:38
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The new director of the Serious Fraud Office (SFO) has performed an unprecedented U-turn by reopening a major fraud investigation dropped by his predecessor last year.

David Green quietly ordered his organisation to reopen its inquiry into the $600m (£387m) Weavering hedge fund, which collapsed in what was the biggest-ever fraud in the sector.

The decision was taken on Friday, hours after Mr Green announced he would be pursuing a criminal investigation into the Libor-fixing scandal, but news of the decision only started trickling out yesterday due to the SFO's decision not to announce it formally.

Mr Green's predecessor, Richard Alderman, controversially axed the investigation into the London-based fund in September last year, citing lack of evidence.

It was a decision that enraged victims of the fraud, who just a month later began a successful civil action against Weavering's founder, Magnus Peterson, and others including his wife, Amanda, winning an award of $450m. Peterson was found liable for deceit and breach of fiduciary duties by the High Court.

Some in the legal world were bemused that the SFO should shut its investigation before viewing the evidence and judgment of that civil case. It argued that there was insufficient evidence to secure a conviction.

Weavering's creditors threatened a possible legal challenge to the decision and had been in discussions with Mr Green in recent weeks.

Geoffrey Bouchier, who as joint liquidator represents the interests of creditors and investors in the collapsed firm, said: "Of course, we are pleased with this decision. Our strong view is that the SFO should have been pursuing this all the way along."

The SFO said the move had been taken following a review of the civil case's findings.

Mrs Justice Proudman gave a damning judgment of the numerous "misrepresentations" and "misleading statements" by Peterson, who had "consistently wrongly valued" the fund's assets and forged documents.

Neill Blundell, partner at Eversheds law firm, which was not associated with the case, said: "This is good news, of course, although it was extremely surprising that they dropped the case in the first place. It looks like Green is getting his feet under the desk and making his presence felt."

However, there remains a serious question about funding for the SFO, which has had its budget savagely cut by the Government just as it needs extra money to investigate potential crimes that contributed to the financial crisis.

"The Libor investigation will be huge, complex and very expensive – we're talking millions of pounds rather than hundreds of thousands just to investigate. And the SFO's entire budget is not much over £30m. How is Mr Green going to be able to resource all these investigations?" Mr Blundell asked.

Many lawyers cited budget constraints as being the reason why serious and embarrassing errors were made in the SFO's blundering investigation into the Tchenguiz brothers.

The SFO admitted to making serious mistakes in its investigation into Vincent Tchenguiz and apologised to him.

Weavering collapsed in March 2009 after the discovery that its flagship fund's main assets were a swaps trade with an offshore company controlled by Peterson. It was these swaps which Mrs Justice Proudman described as having been consistently overvalued. Peterson argued that the civil case judgment was "simply wrong".

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