Sigrún Davíðsdóttir's Icelog

The collective amnesia – will there be the Johannesson Institute?

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Back in the 80s, one of the highlights of the year in the US financial sector was the annual Beverly Hills’ junk bond convention organised by the godlike junk bond king, Michael Milken. But as so masterly recounted in ‘The Den of Thieves’ – and confirmed in a US court, Milken was a common fraudster, convicted and sentenced to ten years in prison after being indicted on 98 counts of racketeering and fraud. This included a whole raft of illegal activities such as insider trading, stock parking, tax evasion and taking cut of illicit profits that others gained based on Milken’s information. This looks like a list of activity some of his Icelandic brothers-in-spirit might eventually be convicted of if the Office of the Special Prosecutor is on the right track.

In an interview recently in Iceland Eva Joly, the investigative Norwegian-French judge who sent around 30 high-placed people to prison in the Elf trial, pointed out that some high-flyers never admit to any wrongdoing even when they are convicted and sent to prison. Milken was one of them. This is the story according to the man himself, as published on his website:

In 1989, the government charged Milken with securities/reporting violations in a case that continues to engender controversy. He admitted conduct that resulted – during a brief period in his 20 years on Wall Street – in five violations. Although such conduct had never before (nor has since) been prosecuted criminally – a fact rarely mentioned in press reports – he resolved the case without a trial to prevent further impact on his family. After paying a $200 million fine and serving a one-year-and-10-month sentence, he resumed his philanthropic work.”

Milken’s version skips the fact that he has a lifetime ban on working in securities and paid around $1,1bn in fines and various settlements with the SEC and investors who lost money on his schemes – not to forget that he was indeed convicted and received a sentence of ten years, out of which he should serve a minimum of three years. In the end he only served just over two years because he was diagnosed with prostate cancer with only around two years to live.

Yet, he still lives to tell the story and the glamorous Beverly Hills conference, now the Global Conferencen, is again a major get-together, last held in April this year. Milken is still among the wealthiest people on this planet and has been very astute at using his wealth to buy himself respect and a seat at the right tables. His story is an intriguing example in any debate on whether crime pays – his $200m SEC fine bore no relation to the sums he made on the activities he was fined for. This spring, he shared the podium at the Global Conference with no less than the economist superstar Nouriel Roubini – which to my mind rather reduced Roubini to a junk bond status.

Icelanders follow with avid interest how those who bankrupted the Icelandic financial system – bankers and businessmen alike – still live in apparent wealth. Just this week, it turned out that Magnus Kristinsson and his family all drive around in big and expensive cars though the banks have had to make a ISK50bn, £265m, write-off on his debt. At the height of the folly, Kristinson commuted from his home in the Vestman Islands by his own helicopter – his original source of wealth was fishing. Kristinsson is unknown abroad but well known in Iceland, i.a. for owning Gnupur, an investment company that was the first – and only – investment company to fail during the winter of 2007-08. Its collapse immediately sent the banks’ CDS spreads sky-rocketing and a shiver down the spine of bankers and businessmen: if this was the effect of the bankruptcy of a small obscure investment company it was obvious that if a major company like Baugur, FL Group or Exista would fail the effect would be cataclysmic. The banks made sure it didn’t happen.

The question in Iceland is if and when the Viking raiders and their bankers will go to prison. The story of Michael Milken shows that crime can pay.  For the time being, names like Johannesson or Bjorgolfsson only attract scorn and anger in Iceland – but if Icelanders will be hit by the same kind of general amnesia that helps Milken buying his place in elevated company there might be Icelandic institutions in the future bearing these and other now so infamous names.

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Written by Sigrún Davídsdóttir

July 18th, 2010 at 1:31 am

Posted in Iceland

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