One barrier to a loan had been Thomas Lamont, Jack Morgan’s partner, who for many years had been doing clandestine work for the fascist regime, in addition to pitching banking deals. An Italian deal would have been particularly galling for J. P. Morgan & Co. Pierpont Morgan had been a major figure in Italy, and the government had honored him in 1904 for finding and returning a cope stolen from the cathedral of Ascoli Piceno. A few years later, after the papacy had lost money on poor investments, Pope Pius X remarked, “What a pity I did not think of asking Mr Morgan to give us some advice about our finances!”6 After that, the papacy hired Morgan for advice on the purchase of US stocks.
Jack Morgan was obviously angry when he began hearing rumors, initiated by Ivar, that Italy might do a deal with International Match. Ivar told people the deal must be kept secret because the funds were for Italy’s military use. When he visited New York, he told some people about a deal with “Y Country.” By the time Ivar told Durant that he was working on a “great Italian coup,” all of Lee Higginson already had heard the story.
King Gustav put Ivar in touch with an Italian count, who arranged a meeting with the two key men, other than Mussolini, who would need to agree to a deal. Ivar began a flurry of correspondence with these two men. As usual, Ivar was highly persuasive, and they expressed some interest, notwithstanding their Morgan ties. By the time the three finally met for formal negotiations in October 1930, Ivar had decided to put all of his chips on Italy.
One of the men was Antonio Mosconi, the Italian minister of finance and Mussolini’s leading finance advisor. The other was Giovanni Boselli, general manager of the government’s monopoly grants.7 After a few months, they were close to a deal, and were talking about specific terms, including how much money would be lent and what interest rate would be charged.
Ivar had met Mussolini only once, three years earlier. Nothing had come of that meeting but, now that talks with his deputies were progressing, Mussolini agreed to meet with Ivar again. Even though Mussolini insisted that the details of their meeting were to be kept entirely secret, the prospect of a meeting was enough to sustain Ivar’s hope that Italy would be the pathbreaking new deal he needed to revive investor interest, raise more money, and buoy his securities. America might be plunging into depression, but Ivar was sustained by rays of hope from his three new Italian friends, Mosconi, Boselli, and Mussolini.
Ivar told Littorin and Bökman he was leaving to do some business in Hungary that he could not discuss. He traveled alone and didn’t give any details about when he would return. A colleague, who saw him before the trip, remarked, “I had never heard him be so secretive about anything.”8
Instead of going to Hungary, though, Ivar entered Italy from the north and headed straight to Florence. The details of Ivar’s trip to Italy were later hotly disputed.9 Ivar’s colleagues claimed he indeed had closed a secret deal with the Italians after meetings with all three men. The Italians later admitted they had needed funds, and confirmed that some meetings had occurred, but said they couldn’t reach terms with Ivar. A letter emerged years later, signed by Giovanni Boselli and dated December 23, 1930, which stated that “we do not wish to continue the negotiations. These are therefore terminated.”10 Mussolini denied taking any money from Ivar. He said they had met, but had never reached an agreement. Other observers said Ivar secretly had loaned Mussolini some money, but not in any amount approaching the value of the French or German loans. The truth would never be known.
What was absolutely clear, however, was that when Ivar returned from this trip to Italy, he did something so surprising that no one ever would understand it or be able to explain why he did it. Ivar previously had fudged numbers in his financial statements, just as he had cheated on exams as a child. He had exaggerated profits to smooth reported income. He had avoided reporting liabilities. He had kept investors in the dark about important details. All of those actions might have been questionable, but they never rose to the level of outright fraud. Mostly, Ivar had been skirting the edges of legal rules, to preserve his own flexibility.
What Ivar did next was different.
When Ivar returned from Italy, he locked himself in the Silence Room. He finally emerged and frenetically reported to a few colleagues that he had been engaged in widespread clandestine negotiations throughout Europe. He mentioned so many deals that they could not keep track of where he had been, where he was going, or which transactions might be next.
Then, he left the Match Palace, saying he was late for an important meeting. He walked to the offices of a Stockholm firm that previously had printed stock certificates for his companies. Ivar told the assistant director of the firm that he needed help with what he said was a top secret project. The man was not to tell anyone about the order Ivar was about to place.
Ivar then asked the man to lithograph forty-two Italian government bills. Ivar showed the man an actual bill and described how he wanted the finished product to appear. He wanted the bills to bear the same coat of arms imprint as official Italian government treasury bills, as well as the title “Italian Monopoly Administration.” He wanted them to state “six percent treasury bills with interest payable at Barclay’s Bank, Ltd, in London.” Below that statement would be the words “Rome 15 August 1930” and “General Director” on a signature line. In the lower left corner, it should read, “Guaranted [sic] as to principal and interest by the Kingdom of Italy” along with the words “Minister of Finance” and another signature line.11
Ivar went over each of these details, to be sure the bills would look exactly like a real Italian treasury bill. Then, after he had placed this order, he went home to his apartment at Villagatan. He walked past the Carl Milles statue and stopped in to see Ingeborg Eberth next door. Although he rarely played any music, this time he tried a few improvisations on her grand piano.12 In his own flat, he patted the heel of the small wooden bear on the lowest banister of the handrail. He ate some fruit. He went back out for his nightly walk. He tried to fall into the patterns of his normal life, the habits he had followed before this trip to Italy changed everything. But inside his fantastical genius mind, something profound had changed. He would never be the same.
While Ivar was away on what appeared to be a trip to Hungary, A.D. Berning had decided to come to Stockholm unannounced, to check on the Swedish audit of Ivar’s companies. Berning was the last person Ivar wanted to see, and he certainly wasn’t in the mood to answer any accounting questions. When he learned Berning was in town he arranged an elaborate series of excuses to avoid a meeting. Karin Bökman, Ivar’s assistant, told Berning that Ivar was not seeing anyone; even she was unable to get any time with him.13 Ivar managed to dodge Berning throughout his stay. Then, the moment Berning left Sweden, Ivar inundated him with increasingly bizarre written requests.
For example, he cabled Berning that he wanted to change the recorded cost of the German loan on International Match’s financial statements. He wanted it to be listed at 83 cents per dollar rather than the actual cost of 93 cents. Then, Ivar wanted to take that extra 10 cents and record it as ownership of shares in the German monopoly.
This accounting switch made no sense: the cost of the loan was 93 cents per dollar, whereas any profits from the German monopoly would flow in over time. Ivar apparently wanted to use the reduction in the cost of the German loan to hide profits on the French loan. Perhaps Ivar thought it unseemly to report that he had made 5 million dollars from the French government. Perhaps he just wanted to save those profits for a future date, or move them somewhere else. In any event, he wrote to Berning that, “If this is done I think the five million dollars profit on the French bonds will suffice to cover the shrinkage in the value of the German government bonds.”14
Other cables from Ivar were simply impenetrable. Here is an example, which one can only imagine Berning trying to decipher:Major changes in Continental’s portfolio since first of year are that eighty thousand shares in Kreutoll were sold in May with profit of approximately three million dollars. Part of the
proceeds of this sale has been used to pay off the debt to Swedish Match Company and the remaining part has been lent to Swedish Match Company. Of the forty million dollars obtained by Continental in April part has been used to pay for German bonds taken over by International Match and about five million dollars have up to now been paid on Turkish business. The balance is temporarily debited Swedish Match Company until end of year when different assets will be taken over by Continental or International Match from Swedish Match Company.15
The only response to this kind of cable was: What? Didn’t Ivar understand that these companies were separate? He couldn’t just move shares, sales, cash, and assets among Kreuger & Toll, Swedish Match, International Match, and Continental. Or perhaps he could. These were either the requests of someone who was blatantly ignoring basic business and accounting principles or someone who was spewing gibberish and had simply gone mad.
When Ivar’s lithographer sent the forty-two printed Italian bills, Ivar copied the names “G. Boselli” above “General Director” and “A. Mosconi” above “Minister of Finance” on each of them. Although Ivar had claimed as a child to be skilled at forgeries, his forged signatures on these bills were extremely crude. He even misspelled Boselli several times.
Ivar locked all of the signed bills in the private safe in his office at the Match Palace, along with a draft of an Italian match contract. According to the terms of the contract locked in the safe, Ivar was to acquire a 90 percent stake in Italy’s match business in exchange for a loan.16 The amount of the loan was left blank.
Why would Ivar forge the Italian treasury bills, which now sat unseen in his safe? Did he think the bills might help him raise money in America, by convincing key people that there was proof of an Italian deal? Did he believe the bills would assuage his bankers, who were worried he might not be able to repay his companies’ loans? Or did he plan to use the bills to justify entries on his financial statements for 1930, which were about to be closed? Ivar often had included projections of future profits in the income statements he sent to his accountants, both Berning and Wendler. Were the fake bills support for a claim of profits from Italy in 1930?
In late 1930, only Ivar and the assistant manager of the lithography firm knew enough even to ask such questions.
More than a year earlier, during the crash, Ivar had pledged to buy any American Certificates of Kreuger & Toll the syndicate members could not sell for the original purchase price of $28. Now, the due date of the put back right was approaching. During the first six months after the October crash, the prices of Ivar’s securities had held reasonably steady and the number of holders of American Certificates actually increased by more than 20 percent. 17 But later in 1930, the prices began to fall.
Near the end of December 1930, several of the banks exercised their put back rights. They requested that Ivar buy a total of 157,036 American Certificates at the issue price of $28, or just under $4.4 million dollars.18 Donald Durant was in Paris when he got the news that the banks were putting back the certificates.19 His reaction, on behalf of Ivar, was disbelief and desperation. Durant wanted to do everything possible to avoid the put back.20 Durant sent word that Ivar soon would be obligated to pay the syndicate members, and he insisted on meeting with Ivar, who also was in Paris at the time.
Ivar couldn’t dodge Durant, as he had Berning. Instead, he used the meeting to persuade Durant that everything was fine. Ivar’s companies had never been more solid, and this put back obligation was nothing more than a minor nuisance. Ivar simply asked Durant how much money he should send, and said he would send it right away. He seized the in-person meeting as an opportunity to show Durant that his businesses still were doing so well that a 4.4 million dollar payment was a mere trifle.
Ivar rounded the put back obligation up to 5 million dollars and wired that amount to Lee Higginson’s account at the Federal Reserve Bank of New York later that day.21 Ivar said Lee Higg could hold onto the extra 600,000 dollars. He didn’t need it right then.
At the same time, Ivar asked Durant to raise yet another 50 million dollars for International Match. Ivar said he planned to use the proceeds from the new issue to repay some of his outstanding debts to Oscar Rydbeck’s bank, the Swedish Credit Bank. Interestingly, Ivar also owned 10 percent of Rydbeck’s bank. There was a saying that if you owed the bank a thousand dollars, the bank owns you, but if you owed the bank a million dollars, you owned the bank. In Ivar’s case, this statement was not just figurative; it was true. He planned to use this new money, in part, to repay himself.
As for a new securities issue, Durant initially said Lee Higginson couldn’t possibly do a deal for Ivar, given the declining markets and the lack of detail in International Match’s financial statements. Durant’s major sticking point seemed to be the fact that International Match’s balance sheet included an entry for “marketable securities” in the amount of 77 million dollars with no other description. When Durant asked Berning for help getting details about this entry, Berning bristled. Berning insisted that investors would not object to the missing detail; to the contrary, even given the depressed markets, they were delighted to have another opportunity to invest in Ivar’s company.22 Berning didn’t understand why Durant was being such an obstacle.
Berning also prepared what he called a “little memorandum” on those marketable securities. The little memorandum was designed to be seen by Lee Higginson, but not any investors. Berning wrote to Ivar that “This seems to be the only item on which any question would arise and we hope you will agree with the manner in which the matter has been handled.”23 Ivar liked Berning’s work. He replied that, “I find the memorandum prepared by you regarding the $77,000,000 security item excellent.”24
The specific problem Berning addressed was that “marketable securities” included 50 million dollars of bonds from the German deal. There were numerous questions about where those bonds were and what they were worth. Many of Ivar’s impenetrable cables to Berning had involved this issue.25
In January 1931, Durant finally relented and Lee Higginson agreed to do a deal for International Match, notwithstanding the remaining questions about the company’s financial statements. The new issue was in the form of gold debentures, the safest investment International Match had offered investors. The deal resembled the company’s first American issue, from 1923.
This time, International Match sold 50 million dollars of ten-year gold debentures at 96 percent of par, to raise a total of $46,125,000. The prospectus said the money was to be used “for investments in Portugal, Norway, Denmark, Poland and Colombia, as well as for the purchase of a match factory in Turkey and/or Turkish and German Bonds.”26 Some of the money would be used to pay down the loan to Rydbeck’s bank in Stockholm. In fact, more than half of the money went straight to Continental, Ivar’s still somewhat secret subsidiary in Vaduz.
Ivar’s bookkeeper and former Kalmar schoolmate Sigurd Hennig was especially perplexed by all this activity. Hennig couldn’t figure out how to add up Ivar’s income for 1930. Neither could Anton Wendler, Ivar’s Swedish auditor. Ivar had transferred funds among his companies frequently throughout the year, and he now seemed to owe Kreuger & Toll the equivalent of about 100 million dollars. Ivar told Hennig he owned numerous other assets that weren’t listed on the books yet, including a gold mine at Boliden, and more than 11 million dollars of investments in two American companies, Diamond Match Company and Ohio Match Company. Ivar told him, “There must be something wrong here, Hennig. The money can’t have run away, can it?”27
When Hennig persisted in questioning some French bonds that appeared to be deposited in a Dutch bank Hennig did not recognize, Ivar finally exploded, “That bank is a good bank. Is this a conspiracy against me? Have you all joined in an attack against me?”28 Ivar told Hennig and Wendler that, if they had to know, the missing entries were made up for by an Italian deal he had been negotiating. It was top secret. Mussolini had insisted no one should know.
Ivar said he would show the It
alian contract and treasury bills to Wendler, and let him decide if they bridged the gap. Ivar no longer trusted Hennig, and would not permit him to see the bills. Wendler went to the Match Palace, entered Ivar’s office, and watched as Ivar unlocked the safe and removed a contract. The contract amount was no longer blank. The amount written there was 21 million pounds, triple the missing value. There seemed to be that amount of Italian bills there as well, also signed by the relevant government officials. These bills appeared to represent Ivar’s claims on the Italian government, and they were more than enough to cover any discrepancies.
Wendler apparently was satisfied. He told Hennig to make an extra entry on Kreuger & Toll’s 1930 financial statements for 7 million pounds. Given that the value of the Italian treasury bills was triple that amount, there remained a 14 million pound cushion for Kreuger & Toll to use during the following year.
Oscar Rydbeck had heard rumors about Kreuger & Toll’s deficit, and he also confronted Ivar. Ivar explained that there was no trouble; if there had been, why would Ivar have repaid part of Rydbeck’s bank loan? Ivar told his banker in confidence that he had just made one of the biggest deals of his life. In fact, Ivar said, he would need another 35 million dollar loan by April 1931 to cover this secret deal. With the Swedish government’s backing, Rydbeck arranged for a small additional loan. That money bought Ivar time until his next dividend payment was due in July. Once again, he had only a few months to raise enough cash, to keep his world from collapsing, and he just narrowly made the deadline.
By now the strain on Ivar was obvious to all of his colleagues and friends. He drank more alcohol than ever before, and he smoked constantly. He spent increasing amounts of time locked in the Silence Room. One assistant who saw Ivar in April 1931 in Paris described him as alternating between moods of depression and mania:Kreuger was even more depressed than when I saw him the last time in March. It was difficult for him to hide his agitation in my presence, and he completely lost his usual self-control as soon as he thought himself alone. Pacing nervously back and forth in the room, speaking loudly to himself, smoking one cigarette after the other and always ready to rush to the phone, he seemed like a person who was not quite in his right mind. It was terrible to hear his restless steps in the quiet apartment and the sound of his talking to some invisible enemy. As soon as I entered the room he none the less regained control over himself and now seemed calm and collected.29
The Match King Page 22