First magnus liquidating trust
It fell to be determined whether a fraud was perpetrated by the swaps and representations made to investors in M's offering memorandum and due diligence questionnaires, and whether the swaps were sham transactions or honest trades entered into as part of an honest trading strategy.(1) On the evidence, the swaps were consistently wrongly valued and there were serious flaws in the way the paperwork for the swaps was dealt with.Within M's first month of trading, it lost over 19 per cent of its assets by value in exchange trading.D1 caused M to enter into two over the counter (OTC) options on forward rate agreements (FRAs) with X, whereby M's loss was converted on paper into profit.D10 was therefore not liable to W for dishonest assistance but liable in negligence (paras 207-210).(6) With one exception, relating to a single payment of £85,000, D1's transfer of assets to D3 were made out of moneys he held on constructive trust for W.In all the circumstances, the swaps were never intended to be enforceable instruments but were simply used to manipulate figures to give the impression to investors that M was successful.The swaps were shams, Snook v London and West Riding Investments Ltd  2 Q. 786 followed (see paras 106, 110, 112, 114, 116-117, 122-129, 139, 142-143 of judgment).
(5) D10 had been over-promoted and had accepted everything that D1 had told him as to trade customs, compensation, authorisation and the like.The second defendant (D2), who was D1's wife and a director of W, was accused of negligently permitting the alleged fraud to happen.The same was alleged against the ninth defendant (D9), another director.Those payments were, accordingly, made in fraud of creditors under s.423 of the Act (para.243).(7) W and L had, accordingly, made out their claims with the exception of the claims in fraud against D10 and the claim in respect of the payment of £85,000 by D1 (para.246).
Although not fraudulent, D10 had plainly been negligent.