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NERA's Role in Weavering Capital (UK) Ltd. and Anr v. Peterson and Ors
The Situation
Weavering Capital (UK) Limited ("WCUK") was a London-based investment manager that acted as the investment adviser to the Weavering Macro Fixed Income Fund Limited (the "Macro Fund"). WCUK and the Macro Fund collapsed in 2009 amidst allegations of fraud. WCUK's liquidators sued the company's former Chief Executive and Managing Director, Mr. Magnus Peterson, and three other WCUK directors and employees. The liquidators sought compensation for the hundreds of millions of dollars in losses incurred by investors in the Macro Fund.
The civil case, brought before London’s High Court of Justice - Chancery Division, focused on interest rate swap agreements with a reported value of more than $600 million between the Macro Fund and British Virgin Islands-based Weavering Capital Fund ("WCF"), a company majority owned and entirely controlled by Mr. Peterson. WCUK's liquidators claimed that the interest rate swap agreements were "sham" transactions used by Mr. Peterson to manipulate the Macro Fund's reported asset values and to give investors the impression that the fund was performing well. Mr. Peterson claimed that the interest rate swaps were legitimate commercial transactions and were part of a hedging strategy employed by the Macro Fund.
NERA's Role
Former NERA Senior Vice President Dr. Chudozie Okongwu was retained to provide expert economic analysis and testimony on behalf of WCUK's liquidators. Dr. Okongwu's analysis demonstrated that the cash flows exchanged between the Macro Fund and WCF in relation to the interest rate swaps were not consistent with the economic value of the transactions. Dr. Okongwu provided evidence that the valuations ascribed to the interest rate swaps were incorrect and did not take account of the counterparty risk associated with WCF. Dr. Okongwu's analysis included a detailed review of the Macro Fund's exchange-traded positions over a sample period in December 2008, and showed that they not only failed to act as hedges to the interest rate swaps, but actually increased the sensitivity of the portfolio to changes in the level of interest rates. On the witness stand, Dr. Okongwu refuted testimony from the defendants in the case.
The High Court judge presiding over the case, Sonia Proudman, cited Dr. Okongwu in her decision. She described his report as "the opposite of superficial, dealing with all relevant matters in considerable detail and great clarity." Commenting on the credibility of his testimony, she stated, "[h]e considered all questions put to him carefully and courteously and his answers were neither partisan nor dogmatic."
The Result
On 30 May 2012, Justice Proudman issued a judgment on behalf of the liquidators, terming the interest rate swaps "shams" and finding Mr. Peterson liable for fraud and the other three other defendants liable for negligence. All four defendants were also found to be in breach of their duties to WCUK. Justice Proudman awarded damages of $450 million against the defendants.