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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

OSP: house searches in Iceland today, related to Landsbanki

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Today, the Office of the Special Prosecutor conducted house searches at several premises in Iceland, related to an investigation into Landsbanki. Seven people, among them the bank’s ex-CEO Sigurjon Arnason, are being questioned but it’s unclear if anyone will be held in custody.

According to Icelandic media today, the searches are related to four topics:

1. Alleged market manipulation related to shares in Landsbanki.

2. Loans to four companies Hunslow S.A., Bruce Assets Limited, Pro-Invest Partners Corp and Sigurdur Bollason ehf. to buy shares in Landsbanki.

3. Landsbanki Luxembourg’s sale of loans to Landsbanki only a few days before the bank collapsed in Oct. 2008.

4. The buying of shares by eight offshore companies that supposedly were set up to hold shares related to employees’ options.

Sigurdur Bollason is an Icelandic businessman, often connected to Baugur companies and a friend and associate of Magnus Armann, another Baugur associate. According to my sources Bollason, who imported UK high street fashion to Iceland over a decade ago, met Kevin Stanford, through business with Karen Millen, then Stanford’s wife. That’s how Stanford became connected to Icelandic banks and businesses, first with Baugur, where he was often a co-investor, and later with Kaupthing where he was involved in the financial high-wire acts that Kaupthing engaged in.

Hunslow S.A. was registered in Panama in Feb. 2008. In November 2009 two Novator companies (Novator is the investment fund of Bjorgolfur Thor Bjorgolfsson who was a major shareholder in Landsbanki and Straumur investment bank together with his father) were registered in Panama with the same law firm as Hunslow. The same five directors are on the board of the two Novator companies and Hunslow but there are probably hundreds of companies registered at this one law firm. I have no information on Bruce and Pro-Invest.

The loans moved from Landsbanki Luxembourg to Landsbanki Iceland on Oct. 3 2008 amounted to €784m. By far the largest loan had been assigned to Bjorgolfsson, €225m. (The complete list of the loans is here, from the SIC report, ‘Tafla 20’) but the four companies mentioned above are also on the list.

I find it interesting that the OSP is investigating the offshore companies that Landsbanki set up to own shares in itself. The first of these companies was set up in Guernsey in 2000, before the privatisation of Landsbanki in 2002 but later seven more were set up in the BVI and in Panama. To begin with, the bank financed these companies but later one was financed by Kaupthing and six by Straumur, from 2006 when Bjorgolfsson and his father were major owners in Straumur. Bjorgolfsson was Straumur’s chairman.

In total, these companies owned 13,2% of the shares in Landsbanki. Normally, similar structures holding shares for staff option usually don’t own more than 1-2%. The SIC report maps these companies but the weird thing is that although they were apparently set up to hold shares for options they don’t seem to have been used for that purpose. The ownership in each company was held below 5%.

With the bank owning 13,2% via these companies (above the 10% legal limit of own shares) and father and son owning around 45,8% of the bank the majority was assured. Another interesting aspect of these companies is that Straumur lent them against no collaterals. This isn’t the only example of the very close relationship between the two banks where father and son were the major shareholders. Neither of the two are being questioned today.

*Last October I reported on these offshore companies for Ruv. Bjorgolfsson was very upset, according to his spokeswoman, about my reporting and did eventually file a complaint to the Icelandic Press Complaints Commission. The PCC has dismissed the complaint. Here is a story about his spokeswoman when she wasn’t happy about Iceland Weather Report reporting on Bjorgolfsson.

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Written by Sigrún Davídsdóttir

January 13th, 2011 at 7:22 pm

Posted in Iceland

International freezing order on Jon Asgeir Johannesson’s assets

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The Glitnir winding-up committee has obtained an international freezing order of Jon Asgeir Johannesson through a court in London. It means that Johannesson doesn’t have any access to any of his assets. Among them is the flat in New York, bought with a loan from Landsbanki. The rumour goes that Landsbanki didn’t ask for any collaterals against that loan. The price was $25m at the time. It seems that the flat, at 50 Gramercy Park, has been put twice on the market but hasn’t sold so far. Icelog has earlier mentioned the flat and Johannesson’s ownership.

Johannesson rose to fame in the UK business community through drastic buying into high street retailers such as House of Fraser and a long line of famous fashion shops such as Karen Millen, bundled together in his Mosaic Fashion, all under the ownership of his private equity company Baugur. There is a growing sense that at the core Johannesson’s operations there was extensive fraud.

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Written by Sigrún Davídsdóttir

May 12th, 2010 at 8:10 am

Posted in Iceland