The machinery of Kaupthing / Landsbanki market manipulation – updated
As reported earlier on Icelog, the Office of Special Prosecutor has brought charges against managers of Kaupthing and Landsbanki for market manipulation. How did the two banks allegedly manipulate their share price? The SIC shows two basic methods. One was “orchestrated” trading, meaning that the banks themselves placed bids carefully planned in order to influence the price. The other was to lend companies linked to “friendly” and “understanding” clients to buy shares.
The “orchestrated” trading on the Icelandic Stock Exchange is amply documented in the SIC report where trades on single dates are traced in order to demonstrate a pattern, which pushed up the share price in the respective bank. These trades were usually placed just before the ISE’s closing time. On the whole, the banks were enormously large players on the ISE. The last few years before the collapse, trades placed by the banks amounted to 74-80% of all trades on the ISE. – Yes, Iceland is a small country.
The extensive lending to companies to buy the banks’ own shares was a striking feature of the Icelandic banking model. These companies used funds, borrowed from the respective banks to buy shares in these same banks. Some of these companies became infamous after the collapse because there was just something so seriously suspect with these high loans and the individuals who got them. Only with time – and especially with the SIC report – did the whole pattern behind these loans become apparent: this looked like a huge web of companies allegedly all used for one purpose: market manipulation.
This lending to buy shares is connected to another characteristic of the Icelandic banks: generally willingly lending against own shares, thereby cleverly converting the loan book… into equity. – Whenever I hear of banks lending against own shares I take that as a huge big warning sign of something fundamentally wrong in that bank.
The charges against Kaupthing and Landsbanki managers will now test previous suspicion. However, these cases are against the managers who allegedly organised the loans etc. None of the borrowers have yet been charged.
The interesting aspect is that as again the SIC report shows these two ways of influencing share price can be traced back well before the banks met criticism and exposing analysis abroad, i. This fact poses the question if market manipulation was part of the Icelandic banking model more or less from the beginning of their expansion, after the banking sector had been privatised in 2003.
Update:
Here are all the names of those charged:
From Landsbanki: CEO Sigurjon Arnason, Director of Corporate Accounts Elin Sigfusdottir, director of proprietary trading Ivar Guðjonsson, brokerage director Steinthor Gunnarsson and brokers Julius Steinar Hreidarsson and Sindri Sveinsson.
From Kaupthing: chairman of the board Sigurdur Einarsson, CEO Hreidar Mar Sigurdsson, director of Kaupthing Iceland Ingolfur Helgason, director of Kaupthing Luxembourg Magnus Gudmundsson, director of corporate banking Bjarki Diego, credit committee member and Kaupthing corporate employee Bjork Thorarinsdottir, director of prop trading Einar Palmi Sigmundsson and two private business brokers Birnir Saer Bjornsson and Petur Kristinn Gudmarsson.
*Intriguingly, I have heard that examples of this behaviour can be traced back before the privatisation. Landsbanki did set up offshore companies before its privatisation to hold shares in itself. The purpose was to use these shares as options for employees but then they were actually never used for that purpose. These structures were kept after the bank was sold and slowly filled with shares. In this way, these companies added to the power of the largest shareholder – Samson, owned by father and son – since the managers held the voting power, around 12% in the end.
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Thank you for this very interesting blog.
The Office of Special Prosecutor has a massive and complex job. It seems to be getting clearer thanks to the SIC report which put so many facts together.
The extent of the manipulation of share prices and the ease with which the assets in the Equity Release scheme were over-estimated for the loan offer and then sent crashing down when they wanted the SCR to artificially fall enough to grab the assets as the bank sank.
It is widely believed that Landsbanki was insolvent well before the official dates of declaration as the Central Bank of Luxembourg artificially delayed the insolvency declaration and therefore the ‘suspect’ period by giving a loan to the already insolvent Landsbanki Luxembourg, didn’t it?
To artificially delay the insolvency of an insolvent Bank or company is surely a serious breach of insolvency Law?
There are victims who could not get any further transfers of their funds in Landsbanki at the beginning of August despite several demands. They were already unable to operate in August 2008.
This artificial delaying of the insolvency allowed the late transfers of funds out of the bank into waiting greedy hands, didn’t it?
This could be the reason Luxembourg has not wanted to investigate the allegations of serious fraud, mis-selling and abuse of SCR for the last 4 years despite the Criminal proceedings against Landsbanki in several countries couldn’t it?
Perhaps they are afraid of what will be exposed and that the actions of the administrator will be a subject of further discussion at Insolvency Conferences as it was at Nottingham University in 2012!
“The Scandal of the Landsbanki Administration ” and ” An administrator in Turmoil” were 2 of the topics under discussion.
At least Iceland is not afraid to investigate Crime and stand up to the Banksters who rob from decent, honest families, whilst Luxembourg pretends there is nothing wrong.
The Iceland Prosecutor is to be greatly respected for trying whilst others cower in a corner hoping the crimes will disappear with no punishment.
George Ward
20 Mar 13 at 11:13 pm
As reportedin the Guardian, “The criminal case is the largest in a series of fraud prosecutions that have been brought to court in Iceland in recent years, and may be one of the largest alleged market manipulation conspiracies ever seen in Europe.”
http://www.guardian.co.uk/business/2013/mar/19/kaupthing-executives-indicted-for-market-rigging
We await the trial with great interest. Any idea yet when it will start?
anrigaut
1 Apr 13 at 12:51 pm
[…] as one of the biggest cases, on alleged market manipulation and breach of fiduciary duty, brought so far by the Office of the Special Prosecutor came up in […]
Iceland: prosecuting alleged major financial fraud means wrestling with tough defence lawyers at Sigrún Davíðsdóttir's Icelog
25 Apr 13 at 12:29 pm
[…] Already in the SIC report there were stories that raised questions about possible criminal activities. The al Thani loan saga was one of them. Further, the OSP has now charged the top managers in all the three banks. The al Thani case was the first big case to reach sentencing. The three Kaupthing managers now sentenced are also charged in another large market manipulation case, as are managers from Landsbanki and Glitnir (on both cases see here). […]
Why are bankers investigated in Iceland and not so much elsewhere? at Sigrún Davíðsdóttir's Icelog
12 Dec 13 at 11:35 pm
[…] Already in the SIC report there were stories that raised questions about possible criminal activities. The al Thani loan saga was one of them. Further, the OSP has now charged the top managers in all the three banks. The al Thani case was the first big case to reach sentencing. The three Kaupthing managers now sentenced are also charged in another large market manipulation case, as are managers from Landsbanki and Glitnir (on both cases see here). […]
Why are bankers investigated in Iceland and not so much elsewhere? at Sigrún Davíðsdóttir’s Icelog | the Mahoney
13 Dec 13 at 1:24 am
[…] ruled on last week – called the Ímon case after one of the companies involved – is part of a market manipulation case brought against Landsbanki managers. Here the loan saga is similar to the al Thani case: Landsbanki […]
Acquittals and close connections at Sigrún Davíðsdóttir's Icelog
9 Jun 14 at 12:08 pm
[…] cases so car where nine Kaupthing managers were charged for market manipulation (see an earlier Icelog). As in a similar case against Landsbanki managers the Kaupthing bankers were found guilty. The […]
Kaupthing – prison sentences for market manipulation at Sigrún Davíðsdóttir's Icelog
7 Nov 16 at 6:20 pm
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The machinery of Kaupthing / Landsbanki market manipulation
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