Court clears way for recovery of funds allegedly misappropriated by former Cottesloe high-flier Leon Warburton

The Federal Court has cleared the way for a legal pursuit of up to $4 million of investor funds allegedly misappropriated by a former high-flying Cottesloe fund manager and shared with friends and family. The allegations against Leon Warburton have been detailed in a judgment that says a Fremantle-based trustee would be justified in pursuing recovery actions against four people, including his mother, who allegedly received as much as $1.42m each in 2019 from the Cayman Islands investment fund he founded. Justice John Jackson also endorsed Primary Securities’ proposed claim against Mr Warburton for the $150,000 he is said to owe. Mr Warburton’s $20m Warburton Global Macro Fund was lauded in 2017 as Australia’s best-performing hedge fund after returning 50 per cent on an annualised basis. Moving to build on his success, the former Scotch College scholarship student set up the Warburton Global Offshore Macro Fund out of the Cayman Islands two years later, with his Warburton Investment Management as the manager and Primary Securities as the trustee. On WIM’s advice, Primary Securities invested $8.4m from the first fund into the new mutual fund on July 1, 2019. According to Justice Jackson’s judgment, Mr Warburton had about a week earlier executed a loan agreement under which the offshore fund agreed to lend WIM $US3m. On July 15, Primary Securities alleges, WIM drew down almost all of the loan before transferring $3.6m to bank accounts held by Mr Warburton and a company associated with his father. Before the end of that month, it is claimed that Mr Warburton made a serious of transfers, including $1.4m to his mother, $300,000 to WIM’s office manager and $720,030 to his then partner. Primary Securities is also eyeing $334,000 said to have been paid to his father’s company. The allegations have yet to be tested. Justice Jackson noted that “no concise statements in defence have been filed yet, although correspondence ... suggests that the claims will be resisted”. The judgment says the offshore fund returned its residual cash of $4.4m to Primary Securities in December 2019, leaving Warburton Global Macro Fund — now known as the Baker Partners Founders Fund — $4m out of pocket on its investment. On the behalf of unitholders, Primary Securities then embarked on legal actions to recover the losses, clawing back $2.5m under a settlement with its insurer MunichRe. As part of the pursuit, it last year applied to the Federal Court for advice as to whether its proposed recovery actions had merit, given investor concern about the cost of such actions. Justice Jackson found that Primary Securities “would be acting reasonably and properly” in proceeding against four of the six respondents. “PSL has investigated thoroughly, it has received senior counsel’s advice that it should proceed, the potential recovery is substantial, it is adequately funded to pursue the proceeding, and at least some of the respondents may have assets to satisfy judgment,” he said. “It is within the scope of the conduct of a trustee acting responsibly in those circumstances to continue with the proceeding against those respondents.” Justice Jackson also noted that Primary Securities had collected “evidence of considerable investigations that have been conducted to seek to ascertain what has occurred in and surrounding the events.” However, he said, there would be “significant overlap in the forensic contest ... since the claim depends on allegations that Mr Warburton misappropriated the funds on one or two occasions and then distributed them to the various respondents”. “There will also be issues specific to each respondent including, speaking broadly, the knowledge of each relevant person as to whether the funds they are said to have received had been misappropriated.” A crowd-funding post in December that raised cash on Mr Warburton’s behalf to help pay his medical bills said the 39-year-old was planning “another quantitative hedge fund for the benefit of the Perth community” once he returned to health. According to the post, he has spent hundreds of thousands of dollars on medical bills since being diagnosed with Post Acute Infection Syndrome in 2010. The health issues had forced him to “restructure his hedge fund business and later close it at the end of 2019”. WIM was deregistered last year, according to Australian Securities and Investments Commission filings.