Seven Giltnir Bank investors and officials, including Jon Asgeir Johannesson, are being sued for conspiring to snatch control of USD 2 billion to benefit their own “failing companies,” Reuters reports.
According to the complaint filed in the New York State Supreme Court, the seven defendants led by investor Jon Asgeir Johannesson, financed the scheme of USD 2 billion by relying on funds that Glitnir raised in 2007, and then selling USD 1 billion of medium-term notes to investors across the U.S.
The complaint was filed a little over 18 months after Icelandic regulators took control of Glitnir, as well as Iceland’s two other largest banks, in the wake of the global economic crisis. In November 2008, Glitnir then went into insolvency proceedings.
Those accused also include Johannesson’s wife, Ingibjorg Stefania Palmadottir, investor Palmi Haraldsson, former Chairman Thorsteinn Jonsson, former Chief Executive Larus Welding, former directors Jon Sigurdsson and Hannes Smarason.
In addition to the New York proceedings, Glitnir has also succeeded in imposing a worldwide freeze on all Johannesson’s assets. This move in a London court echoes an Iceland-only freeze imposed earlier this week.
There will be a press conference with Giltnir’s insolvency committee at 14.30 GMT today.
[…] Iceland Glitnir Bank investors sued for siphoning $2 billion […]
I never said that there was anything wrong with the foreign investors trying to get their money back. The foreigners lost a lot of money in Iceland and they are entitled to try to recover it, including putting pressure on the Old Glitnir Comittee to go after the former officers and directors and owners.
But this lawsuit is a bit of a farce, as I have explained in a post at the icelandweatherreport. If you read the opening statement to the complaint, it sounds convincing enough. The scenario it lays out is probably what happened. The insiders (Jon Asgeir et al) basically took over effective control of the bank and used it like their personal piggy-bank.
The problem is the forum, i.e. in suing in New York rather than Iceland. If you look at the end of the complaint, you will see that the charges against the cabal are solely violations of Icelandic corporate law, for breach of fiduciary duties of officers and directors. There is not a single charge against the Icelanders based on American law – no civil conspiracy, no fraud, no wire fraud, no negligence, no breach of fiduciary duties, no violation of s. 15 of Regulation FD, etc. Only PWC is accused of violating American law, and the charge there is simply negligence.
The Glitnir Committee, an Icelandic entity, is asking an American court to evaluate the actions of an Icelandic company run by Icelanders, in Iceland, using Icelandic law! All the defendants (except PWC), all the witnesses and evidence, nearly all the relevant laws are Icelandic. How is an American judge and jury supposed to deal with that? And what about all the secondary problems, such as rules of evidence, burden of proof etc etc? And then there’s the collection problem – the judgment would only be valid in the state of New York, but the Icelanders have almost no assets there.
So an American court will either admit it has no jurisdiction over the Icelandic defendants or is unable to try the Icelanders, or send the whole case, except perhaps PWC’s liability, back to Iceland.
It’s quite clear that the sole purpose of the case is to sue PWC for $1 billion or more in damages, and to bring in the Icelanders just to prove PWC’s accounting negligence.
Now maybe the Glitnir Committee has some secret strategy here (such as conducting two trials at once), but really the whole process is ass-backwards if their intention is to try to collect money from Jon Asgeir et al. The Committee should first sue in Iceland, then use that judgment (if they win) and the trial evidence to go after PWC. So why didn’t they do that? Is it because the Glitnir Committee really does not want to get JAJ et al? Are they really just pretending to crack down on the Baugsmenn while squeezing some money out one group of foreigners to pay another? That’s the Icelandic way, screw the foreigners out of money, and throw your hands up and make elaborate excuses why nothing can be done in Iceland.
” >If those investments went bad through poor management then the
>“beneficiaries” lose their money – that’s the way it works. It’s happened to us and
>youy walk away – wiser and poorer.
>However, if the invested money was not used for legal investments then the
>money is rightfully still theirs – hence the action to recover their own money. It is
>hardly being a “beneficiary” to get back money that was essentially taken from
>you by theft or fraud. ”
This is fair point, as usual from Mike UK Nordic Analyst. Good to see you now can post again here in public.
As to the May 11 complaint filed in New York Court by Glitnir winding up committe I can see that it was embelished by the lawyers that did file it as it starts that they do ” respectfully state and allege as follows: ”
then you turn the page and read on it does say
” Between April 2007 and Feb 2008, the individual defendants, a cabal of businessmen led by a convicted white collar criminial, Defendent Jón Ásgeir Jóhannesson engaged in a sweeping conspiracy.. [ to ] frauduletly draain over USD 2 billion out of the bank to fill their pockets and prop up their own failing companies… ”
Even if the rest of the complaint is factual this does just look like an introduction for lazy journalist and prosecutor who need juicy sound bites to encourage them read on past page 2.
Mike (UK Nordic analyst) says:
May 14, 2010 at 8:48 am
Vilhjalm,
“That is a very loaded posting”
Vilhjalm’s post does not qualify as a loaded post.
It would have been simpler to point out that “beneficiaries” is not the appropriate word to describe creditors looking for their money back in a lawsuit.
And yes, it is usually taken as granted that the appointed administrators get paid before anybody else. In practice, salaried employees have a very high priority and get paid before the rest of the creditors.
Vilhjalm,
That is a very loaded posting. You talk of “beneficiaries” – well the situation is that the people and organisations (wherever they are from) are merely trying to recover their own investments. If those investments went bad through poor management then the “beneficiaries” lose their money – that’s the way it works. It’s happened to us and youy walk away – wiser and poorer. However, if the invested money was not used for legal investments then the money is rightfully still theirs – hence the action to recover their own money. It is hardly being a “beneficiary” to get back money that was essentially taken from you by theft or fraud. Imagine someone stealing goods from your house. If you take out a civil action to recover those goods I wouldn’t say that you are being a “beneficiary”.
Secondly, there is the issue about where the money came from. If the money originally came from an Icelander then fair enough that person is entitled to be part of the civil recovery. Equally so, if the person was a German or a Norwegian. It makes no difference. However, one thing you can’t do – and it is implied in your posting – is claim civil recovery of someone else’s goods for yourself. (Imagine the house analogy again – would you think it right for someone else to become the new owner of your goods after they had been stolen?!! In the UK that itself is a crimimal offence.) If “Iceland” – as you label it – invested in Glitnir and lost money then all well and good, if not then “Iceland” has no part in the proceedings. (And who exactly has lost money in Iceland through Glitnir? The government recapitalised the bank but that money is secured against the assets within the bank itself. No doubt there are some private Icelandic investors who will be part of the action, but all the bank accounts with Glitnir were guaranteed 100%. So no ordinary Icelander who held money on account at Glitnir has lost.)
Islandsbanki has no part in this action because it was set up with a bond that settled the disputed assets. That made for a clean break for the “new” bank. It is inadmissable to come back later (unless there is a clause in the new/old bank agreement) and say – Hey, I want some more money! An agreement is an agreement – the creditors took the deal on offer with no knowledge of what they would get back or how they could get it back. It turns out that this civil action is one way of recovering their own money.
About taxes. I agree if there are unpaid taxes then these can be recovered. But that can only be done by an action on the part of the tax authorities, and as far as I can see they are not part of the action against Glitnir.
Finally, the tax man does NOT take the highest priority in winding up proceedings. That is always reserved for the administrators – they get paid first, not the tax man. Why? Because no one would ever take up the job of administrator if they knew that the tax man could step in and take the money that they have recovered.
Large amount and great operation of Glitnir bank. Questionable accounting and too much networking. Is tax evasion possible for back taxes / corporate taxes on bankruptcy ?
The beneficiaries of this lawsuit are the foreign (preferred) creditors who are owed money from old, bankrupt Glitnir.
Iceland, Icelanders and Islandsbanki will get nothing from this lawsuit. The only way iceland can get any money back is by bringing tax evasion claims (with penalties) against the Gang of Seven, or successfully prosecuting them on criminal charges and imposing huge punitive fines. Tax liens (ie claims) take priority over civil claims. Or by going over the books of Glitnir and Kaupthing from the years 2004-2008 and imposing back taxes on the corporations, because tax claims have priority in bankruptcy proceedings.
[…] Iceland Glitnir Bank investors sued for siphoning $2 billion […]
You didn’t mention they’re suing the auditors for $1 billion as well.
Needed the auditors to sell the notes.