Sigrún Davíðsdóttir's Icelog

Kaupthing’s ex-CEO in custody

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Ex-CEO of Kaupthing Hreidar Mar Sigurdsson has been imprisoned after the Office of the Special Prosecutor in Iceland requested a two weeks’ custody for Sigurdsson at the Reykjavik District Court. The Court will rule tomorrow on whether the request will be granted. Sigurdsson is being investigated for various financial malpractice, i.a. market manipulation. It’s most likely that Sigurdsson is only first in line – other managers, board members and major shareholders might well hear from the OSP.

The news has created quite a stir in Iceland. It’s been known that the OSP has been investigating Kaupthing. The fear has been that the cases might prove too big and complicated but no doubt the advice given by the Norwegian French ex magistrate Eva Joly has helped the staff at the OSP to find fruitful directions in the investigation. But it’s not only in Iceland that Kaupthing is being investigated.

The Serious Fraud Office in London also has the collapsed bank under investigation and there is a close collaboration between the countries. Earlier this year, the OSP requested house searches in Luxembourg where 40 policemen conducted searches for three days, mainly concentrating on the now Banque Havilland, earlier Kaupthing Luxembourg, bought by the UK financiers Jonathan and David Rowland. The Rowlands are thought to be unconnected to the alleged fraud.

Now that the OSP has demanded custody for the ex-CEO the question is who will be next. The recent report by the Althingi Investigative Committee threw light on the complicated affairs between Kaupthing’s management and its main shareholders, Agust and Lydur Gudmundsson, Olafur Olafsson and foreigners such as Kevin Stanford and Robert Tchenguiz – wealthy men who became even more wealthy as favoured clients and shareholders of Kaupthing. The Report seems to indicate highly questionable dealings and clear signs of market manipulation.

The interesting angle of the Kaupthing story is how the bank grew exorbitantly in close collaboration with its core shareholders generating huge sums from proprietary trading, fees and joint ventures with the relatively small group of big clients. The bank also serviced clients like the Candy brothers, the London-based property developers and the Russian oligarch Alisher Usmanov, the metal magnate and owner of Arsenal.

The question that many Icelanders will be asking today is if the meteoric rise of Kaupthing and its main shareholders and clients was all too good to be true. When rapid growth and bad loans go hand in hand in a bank it’s often taken as a possible sign of fraudulent behaviour. I’ve pointed out earlier that it’s difficult to find any parallel to the Icelandic banks except Italian Mafia banks. The outcome of the Kaupthing investigation and other ongoing investigations remain to be seen – it will take a while until Icelanders know for sure if their entire banking system was taken over by a group of bankers and businessmen using fraudulent means to enrich themselves.

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Written by Sigrún Davídsdóttir

May 6th, 2010 at 6:05 pm

Posted in Iceland

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