delanceyplace.com 3/8/10 - so much money we can't keep track of it

In today's excerpt - Ivar Kreuger, the Swedish financial genius who built International Match, the world's largest publicly held company during the 1920s, but who used deception and massive fraud to achieve his goals. Central to his deceit was withholding information from his American accounting firm Ernst & Ernst, regarding how much money was missing and how dire his cash position routinely was. When Albert Berning, the Ernst & Ernst accountant, assigned to his company became too insistent on a more close examination of his books Ivar came up with an ingenious new method for evading him. Eventually, International Match suffered a spectacular global collapse and Kreuger committed suicide:

"Ivar decided he needed to be more forthcoming to Albert Berning about his Swedish accountants or at least to appear to be so. ...

"Meeting in Berlin ... Ivar told Berning a secret. He understood Berning's suspicions, and he confided that, indeed the financial statements for International Match were in error. There were mistakes. But not for the reasons Berning might have imagined. Instead, the financial statements were wrong because they massively understated Ivar's profits. Ivar told Berning he was involved in politically sensitive deals with numerous governments, many of which would generate substantial profits, and these dealings simply could not be disclosed to anyone. Ivar said Berning should draw comfort from the safety net of secret deals that were not even mentioned in his corporate accounts. The International Match financial statements weren't supposed to accurately reflect the value of Ivar's enterprises. They were merely a floor, a minimum amount that only hinted at the much higher, true value.

"For example, Ivar showed Berning a copy of what he called the 'Spanish contract,' which appeared to be signed by Miguel Primo de Rivera, the Spanish ruler who had taken over from King Alfonso in a recent coup. Ivar suggested that he had met with King Alfonso in 1923, and he said Primo de Rivera secretly had agreed to honor the terms of a ... deal between Ivar and the king. Unfortunately, Primo de Rivera had abandoned his pre-coup promise to rule for only ninety days, and instead suspended Spain's constitution, established martial law, and imposed a system of strict censorship. ... There was no way for Berning, or anyone, to confirm or deny Ivar's assertions about such a secret deal. Berning understandably would have been reluctant to travel to Spain to try to verify Primo de Rivera's signature.

"Ivar also showed Berning a certificate of deposit showing that the Nederlandish Bank held 400 million francs of French government bonds for the account of Continental Investment Company, Ivar's Lichtenstein subsidiary. When Berning said he hadn't heard of the Nederlandish Bank, Ivar explained that it existed 'in order to keep certain transactions secret from Swedish and foreign bankers.' ...

"Moreover, Ivar behaved like someone who understated, not overstated, his income. One time, Ivar sent the money for International Match's dividends to America early, indicating to Berning that 'we have so much money over here, you might as well have this now.' Another time, Ivar sent an extra million dollars, and later responded 'Oh, we simply made a mistake. We have so much money here we just can't keep track of it.' These were either the acts of a crazed risk taker or a man in such solid financial condition that he really couldn't be bothered with minor seven-figure details. The latter explanation seemed more plausible: Ivar, and International Match, must have had substantial undisclosed assets."


author:

Frank Partnoy

title:

The Match King: Ivar Kreuger, The Financial Genius Behind A Century of Wall Street Scandals

publisher:

Perseus Books Group

date:

Copyright 2009 by Frank Partnoy

pages:

100-101
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