Cayman Islands judgment uses English case law to spell out the duties of directors of an offshore fund
In 2009 Weavering Macro Fixed Income Fund (the Fund) collapsed into liquidation after being unable to meet redemption requests. Later investigation showed that the majority of the Fund’s assets were fictitious.
The Serious Fund Office has announced that it is dropping its investigation into Weavering Capital, the investment advisor to the Fund, on the basis that there is no reasonable chance of convicting its founder, Magnus Peterson.
The SFO’s failure to achieve a conviction is thrown into particular relief by the judgment given in the Cayman Grand Court on 26 August 2011 in a civil action brought by the liquidators of the Fund against two of the Fund’s directors, Stefan Peterson (brother of Magnus) and Hans Ekstrom (the 85 year old stepfather of Magnus). The court found the two directors guilty of wilful negligence in the performance of their duties and awarded damages against them of $111 million.
The court’s judgment is (in addition to being a clear exposition of the duties of directors of Cayman Islands funds) of interest to English corporate lawyers as it contains both:
- A good overview of the general duties of directors in the context of the launch and running of a collective investment scheme; and
- A description of what a director has to do, or not do, to be found guilty of “wilful negligence”.
All of the authorities cited in the judgment are from English case law. The judgment can be read here.
Another aspect of the Weavering case is that the Fund was listed on the Irish Stock Exchange. The Exchange’s listing requirements required two directors to be “independent”. With the benefit of hindsight, it seems remarkable that that requirement was fulfilled by the appointment of the brother and the step-father of Fund’s effective promoter, Magnus Peterson. As is apparent from the Cayman judgment, those two directors were effectively ciphers for Magnus Peterson.
Hedge Funds Review has more on the Cayman court judgment here.
Although the SFO points out in its announcement that it would have been required to achieve a criminal burden of proof in any action it took in the Weavering case, it does appear odd – on the basis of the facts contained in the Cayman court judgment – that the SFO did not think that it could prove a criminal case of fraud.
UPDATE 30 May 2011: Weavering: English civil court finds that hedge fund manager committed fraud
UPDATE 8 July 2012: SFO re-opens investigation into collapse of Weavering hedge fund
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