The Glitnir winding-up committee yesterday initiated court proceedings against them, as well as PriceWaterhouseCoopers, in New York. Yesterday it seemed that Jón Ásgeir had gone AWOL — they couldn’t find him to deliver the subpoena, since apparently he doesn’t have a fixed address. He is obliged to give a written statement of all his assets within 48 hours of the subpoena being delivered, and they will subsequently be frozen. He will also be banned from doing business anywhere in the world. For some reason the major focus has been on Jón Ásgeir, the owner, but presumably all of this applies to all the others implicated, as well.
This morning it was reported, however, that Jón Ásgeir had been located at “one of his apartments” in Manhattan.
The proceedings are being launched in the US because Glitnir raised funds in the US throughout 2007, primarily through the sale of bonds. Yesterday, when the news hit, Jón Ásgeir was apparently livid and threatened the Glitnir winding-up committee, saying they could face up to ten years in prison for “abusing the US judicial system”. When the head of the committee, Steinunn Guðbjartsdóttir, was approached for comment, she remarked: “Well, I didn’t expect him to be happy about it.” [Heheh. Droll. Very droll.]
The legal claim, as outlined on the Glitnir website, minces no words:
[The claim] accuses Jón Ásgeir Jóhannesson, who controlled around 39% of Glitnir’s shares via various entities, of seizing effective executive control of the Bank in April 2007, by ousting Glitnir’s directors and senior management and replacing them with Welding, Jonsson and other accomplices. Jóhannesson and the other named Defendants then used their control over the Bank to issue massive loans to, and fund a series of transactions with, other companies they controlled. In doing so, they flouted the Bank’s internal risk policies, as well as Iceland’s laws and financial regulations governing large exposure to connected parties.
To finance these diversions, the individual Defendants relied heavily on funds which Glitnir raised in the United States throughout 2007 and, in particular, through the $1bn sale of Bonds to investors located in New York and elsewhere in the United States in September 2007. The extent of Glitnir’s financial exposure to Jóhannesson and the companies and individuals who were connected to him was fraudulently hidden from US investors at the time of this fundraising.
In the event, Jóhannesson’s looting of Glitnir Bank failed to save Baugur, his own company, from failure; nor have the sums the individual Defendants siphoned from Glitnir ever been repaid to the Bank. The transactions made no economic sense for Glitnir, and put the Bank – and, by extension, its creditors – in extreme financial peril. Having depleted Glitnir’s cash reserves, the individual Defendants left the Bank heavily exposed to the global credit crunch which struck Iceland’s markets during the summer of 2007, and contributed significantly to its eventual bankruptcy.
Jóhannesson and the other individual Defendants could not have succeeded in their schemes without the complicity of PwC. PwC knew about Glitnir’s irregular related party exposures, reviewed and signed off on Glitnir financial statements which grossly misrepresented these exposures, and facilitated Glitnir’s fraudulent fundraising in New York.
The Defendants in the case are:
- Jón Ásgeir Jóhannesson, former Executive Chairman of Baugur; former Chairman of FL Group; principal shareholder in both companies and, through them, controlled around 39% of shares in Glitnir Bank
- Thorsteinn Jonsson, former Chairman of the Board, Glitnir Bank; also former vice-Chairman of FL Group
- Jón Sigurðsson, former Director of Glitnir Bank; also former Deputy CEO of FL Group
- Lárus Welding, former CEO and Chairman of the Risk Committee, Glitnir Bank
- Pálmi Haraldsson, former vice chairman of FL Group’s Board of Directors
- Hannes Smarason, former CEO of FL Group and former Director, Glitnir Bank
- Ingibjörg Stefanía Pálmadóttir, wife of Jón Ásgeir Jóhannesson; former Director, Baugur
- PwC, auditor to Glitnir Bank; performed reviews and issued letters on which investors relied in connection with the September 2007 New York bond offering
You can read the full claim, plus the full copy of the New York legal action, here.
The Glitnir winding-up committee apparently did a very sensible thing by enlisting the services of the company Kroll Industries, who are experts at advising in litigation matters. Seriously, we need all hands on deck we can get around here these days – which reminds me that there was also a news item this morning that Norway is sending over a team specialized in investigating financial crimes later this month.
Incidentally, apropos the last post, the details are a little sketchy, but it looks like British authorities have not formally issued a refusal to arrest and extradite Sigurður Einarsson.
~~ And just one more thing: big props to Fréttablaðið for giving very comprehensive and unbiased coverage of the proceedings against Jón Ásgeir and co. — its owners. It will be interesting to see if they all manage to keep their jobs.