Sigrún Davíðsdóttir's Icelog

SFO wrestles with the Tchenguiz case

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Serious Fraud Office seems to have committed a major blunder in the handling of documents when Vincent Tchenguiz, together with his brother Robert, was arrested in March last year, together with Sigurdur Einarsson, ex-chairman of Kaupthing’s board and six others. The arrest was connected to an SFO investigation into the relationship between the Tchenguiz brothers and Kaupthing. According to the FT, a High Court judge has scolded the SFO for “sheer incompetence:” the SFO admits is has “no clear record” of the information it used to obtain search warrant. True, it seems pretty gross that the SFO can’t document the information used to obtain the search warrant – but this dispute doesn’t touch the substance of the charges, only the way SFO documented their case for making the arrests. And it seems only to relate to the warrant on Vincent Tchenguiz, not the others.

It is clear from the SIC report that Robert Tchenguiz was both Kaupthing’s largest borrower, with his loans of €2bn, and had stakes in the bank’s largest shareholder, Exista. He was on the board of Exista, whose founders and owners were Lydur and Agust Gudmundsson. This relationship – being a major shareholder and the largest borrower or among the largest borrowers – is the normal one in the most abnormal loans issued by the Icelandic banks: loans that ia broke the banks’ rules on legal limits exposure, had no or worthless collaterals, weren’t subjected to margin calls or paid by issuing new loans etc.

Vincent’s relationship to Kaupthing was far less extensive. He had a loan of €208m, which he seems to have taken/been offered as he put up an extra collateral for his brother. In court documents related to Vincent’s legal wrangle with Kaupthing over this collateral – a whole saga in itself, ended late last year with an agreement between Kaupthing and Tchenguiz’ entities – it’s clear that Vincent was of the understanding that Kaupthing wouldn’t claim the collateral.

Further, Vincent Tchenguiz also claims that Kaupthing knew the collateral couldn’t be claimed because of cross-default triggered if the assets changed hands. The value of an unenforceable collateral raises some intriguing questions, ia for the bank’s auditors since such a loan seems to be worth not much. Now, this is only Vincent’s side of the story. The Kaupthing managers haven’t told their story of this loan – nor of any of the loans, so abnormally favourable to the clients and abnormally unfavourable for the bank.

It seems pretty clear that the Kaupthing loans – as is true for the loans of Landsbanki and Glitnir to favoured clients – are far from normal. The question is why the banks decided these loans were a good idea for the bank. The Tchenguiz brothers have claimed that Kaupthing duped them into investing in the bank, that they didn’t know the bank was running a scheme, which could be seen as a market manipulation.

All these favoured clients, including the Tchenguiz brothers, are experienced businessmen. Same with Kevin Stanford, mentioned on an earlier Icelog: experienced business men must have known that the loans they were offered weren’t quite the run-of-the-mill loans any bank would offer. They would also know that borrowing from a bank doesn’t necessarily mean that the bank, as a side offer, peddles a loan to buy some of the bank’s shares. It’s normally not necessary to be a shareholder in order to borrow from a bank. Claiming to be a victim of Kaupthing managers’ duplicity makes these victims seem more than ordinarily naive.

Some of the favoured clients of the Icelandic banks have claimed that the offers were too good to refuse. The SFO seems to be investigating what the real relationship was between Kaupthing and the Tchenguiz brothers. If the SFO suspicions are valid it is unfortunate that they could possibly hinge on technical issues. Remains to be seen.

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Written by Sigrún Davídsdóttir

April 5th, 2012 at 4:29 am

Posted in Iceland

5 Responses to 'SFO wrestles with the Tchenguiz case'

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  1. According to Bloomberg, the case – due to be heard on 22 May – is “Robert Tchenguiz v. Director of the Serious Fraud Office & Anr, High Court of Justice, Queen’s Bench Division, Administrative Court, CO/4468/2011.”

    It will indeed be most unfortunate if any case the SFO may have cannot be properly pursued on account of procedural blunders.


    5 Apr 12 at 7:58 am

  2. This sort of thing is predictable, and I’m amazed that any modern prosecutor would not be ready for it.
    Frankly, if I were a wealthy fraudster, I would bribe somebody connected with the prosectution to commit a procedural blunder, so that the prosecution, and not myself, would be the target.
    Oh, and while we’re at it, I would bribe people in the mainstream media to focus all their attention on the blunder and not on me.
    Long experience of reading the news in several countries has taught me this.


    5 Apr 12 at 6:14 pm

  3. […] FT took up the same topic, explaining in detail what it was that the SFO had messed up. An earlier Icelog deals with some aspects of the Tchenguizes relationship to […]

  4. Keep it live, well at least in the public domain.
    Every little helps.
    In my opinion the Tchenguiz’s are gunslingers and they deaerve to go down, Let’s assist in making it happen.
    Well done for the article, the thread, and the intention.
    These bastards need to go down,


    4 May 12 at 7:06 am

  5. […] *Earlier Icelog on that case is here. – The ruling in the Howers case is here and Einarsson’s case here; both only in Icelandic – Mr L […]

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