Magnus Peterson, the boss of collapsed hedge fund business Weavering, has been found guilty of defrauding investors and ordered to pay hundreds of millions of dollars in damages.
London's High Court ruled that Mr. Peterson, manager of the Weavering Macro Fixed Income fund, deceived clients and breached his duty of care to investors with a strategy that could not cope with the vagaries of markets at the height of the global credit crisis.
Damages of $450-million (U.S.) were awarded against Mr. Peterson, seated next to a fellow defendant when the judgment was handed down on Wednesday, and three other directors including his wife, Amanda.
The outcome comes a day after Britain's Financial Services Authority doled out a record fine to Italian academic-turned-fund manager Alberto Micalizzi, as authorities step up efforts to chase errant hedge fund bosses out of the Square Mile.
"I do not accept Mr. Peterson's assertions that the investors understood his strategy very well. He cannot show any document in which he explained it," Judge Sonia Proudman wrote in her judgment on Wednesday.
Britain's Serious Fraud Office dropped probes into both Mr. Micalizzi and Mr. Peterson in recent years, raising questions over London's ability to uncover and punish white collar crime.
The SFO claimed that there was not "a reasonable prospect of conviction" in the Weavering case and quit its investigation into Mr. Micalizzi citing a lack of evidence.
Judge Proudman said that Mr. Peterson, who represented himself throughout the case, may have committed the fraud "out of a sense of invincibility, self-belief, and a gambler's mentality."
Three other directors at the fund firm – Edward Platt, Charanpreet Dabhia and Amanda Peterson – were also found guilty of negligently permitting fraud to happen.
Liquidators of Weavering, which inflicted hundreds of millions of losses on investors, launched a civil case against Mr. Peterson and other Weavering staff last year after Britain's Serious Fraud Office dropped its probe into the 2009 collapse.
Throughout the case Mr. Peterson denied lying to investors.
The case centred on more than $600-million of interest rate swap agreements between the Macro fund and a British Virgin Islands company called Weavering Capital Fund (WCF), which was related to Weavering.
Lawyer Robert Anderson, representing the liquidators, alleged Mr. Peterson misled investors by concealing the fund's investments in the swaps.
Judge Proudman said the swaps were never intended to be enforceable instruments but were a "sham" used to manipulate net asset value figures to give investors the impression the Macro fund was successful.
During the case Mr. Anderson said WCF made a number of investments at the end of 2008 to try to bolster its balance sheet in case questions were raised about its ability to honour swap agreements it had entered into with the Macro fund.
According to Mr. Anderson, these investments included £810,000 in a firm called Lobo Gris, valued at $4.47-million.
Lobo Gris was owned by one of Mr. Peterson's friends and was going to make a documentary about Adolf Hitler if he had survived World War II, but the company went into administration in 2010, Mr. Anderson said.
Jones Day partner Barnaby Stueck, who represented the liquidators, said in a statement after the judgment that Weavering's investors believed Mr. Peterson should not be allowed to escape with mere bankruptcy.
"They will be asking the Serious Fraud Office to reconsider its decision not to proceed with the criminal investigation given these very clear findings," he said.
The SFO, which has seen its budget cut by 34 per cent since 2008-2009, dropped its two-and-a-half-year probe last year.
This came just days after a Cayman Islands civil court awarded damages of $111-million against two of Weavering's fund directors, Stefan Peterson and Hans Ekstrom – Magnus Peterson's younger brother and stepfather respectively.