The Match King

by Frank Partnoy

  The level of anxiety about Ivar increased during late 1931, as these rumors spread. Some analysts and banks expressed skepticism about Ivar’s companies; others said they were near collapse. One major bank, Credit Suisse, declared Ivar a “very dangerous person” and said it would not lend to any of his companies without a guarantee that the money would not be available to Ivar personally.65 Rydbeck and Svenska Handelsbanken continued to stand behind Ivar, but Rydbeck was increasingly skeptical as well. He had tried to persuade Ivar to cancel his dividends on Kreuger & Toll, with no success. However, Ivar finally conceded that he could not afford to pay shareholders of Swedish Match. He sent them a notice that was alarming in both substance and startlingly vague form:The industrial and commercial activities of the Swedish Match Company have produced about the same results for the first half of 1931 as for the similar period the previous year … The sharp fall in the prices of various government loans that have occurred lately may make it necessary for a large part of the company’s profit to be used for write-offs on these securities. With due consideration to this possibility, and bearing in mind the uncertainty of the current state of affairs, the board considers that greater consideration must be given to the liquidity of the company than would otherwise be the case, and has accordingly decided to postpone its final decision regarding the payment of an interim dividend for 1931 until the world economic situation has become somewhat more settled.66

  The obvious message to investors everywhere who had depended on Ivar was that they had made a mistake. The dividends they were expecting from Swedish Match would not be coming soon, or possibly ever. The subtext to this message was even more alarming: perhaps the rumors about Ivar were true.

  Ivar spent late November and early December alone in London and Paris, trying to avoid questions, particularly from Durant and Berning. Even Ivar’s friends rarely saw him; Oscar Rydbeck thought Ivar had withdrawn almost entirely from personal relations. Ivar said, “I have no time to bother with people, and besides I want to avoid being influenced by their wrong ideas.”67

  Yet when Ivar was forced to see someone, he couldn’t help turning on the charm, insisting all was fine, and even trying to convince them to invest in his companies. During a medical check-up, he persuaded his Paris physician to invest 113,000 dollars in International Match.68 But most of time he avoided all human contact.

  Ivar apparently didn’t give up on a deal with Italy, or perhaps Spain, even though he couldn’t bear to do the work in person. He assigned Ernst August Hoffman, the loyal ex-bank clerk who had helped him with Continental, to handle what Ivar claimed were ongoing secret negotiations with the Italian government. According to Ivar, Hoffman was in Italy during November “urgently attending important conferences.”69

  Some of Ivar’s securities, which had been as high as $863 before the crash, had fallen to half of that in August and then plummeted to nearly $100 by October.70 Ivar was clearly depressed about the market’s loss of confidence. Krister Littorin tried to comfort him. He wrote, “While markets have been particularly bad this week and generally feeling blue I for some unaccountable reason have been unable to shake off a feeling all week that we are approaching a turn or at least a good rest. If we could only stop printing of the newspapers in the world for six months we would get somewhere.”71

  By now, Ivar had delegated most of his day-to-day responsibilities to Littorin, who kept tabs on the markets and monitored their investments in various securities.72 Littorin met with senior government officials, including the Governor of the Bank of England.73 When Oscar Rydbeck returned from America even more nervous than before, Littorin came to Rydbeck’s bank with Ivar and ran the meeting.74 Littorin also stepped into Ivar’s negotiating shoes: he handled talks with Hungary regarding its 8 million dollar loan, 3 million dollars of which was overdue.75 He also took over discussions about Ivar’s involvement in the American match business.76

  By Thanksgiving 1931, Durant was begging Ivar to come to New York. He desperately cabled, “Presume you will bring with you figures of all three companies as uptodate and detailed as possible.”77 Durant had seen a report made to National City by a person described as a “good friend who was recently in Sweden,” suggesting that Ivar had been scrambling to pay his debts and effectively had been bailed out by Oscar Rydbeck’s bank.78

  Ivar wasn’t at the Match Palace, but Krister Littorin intercepted Durant’s telegram. Littorin was concerned about Ivar’s mental health, and decided not to push Durant’s requests too hard. The last time the two ex-classmates had seen each other, a few days earlier, Ivar had frantically demanded that Littorin find an obscure quote from Abraham Lincoln about government borrowing and currency inflation. Then, Ivar abruptly left town.79 Littorin finally found Ivar locked in his favorite room at the Savoy Hotel in London. With Littorin’s help, Ivar responded to Durant that the accusations about a bailout were false, and replied that, “As a matter of fact no Swedish private bank has had to find any money at all for this purpose as I got the money needed from the National Bank.”80

  In fact, the directors of Rydbeck’s bank, which had bailed out Ivar, were increasingly concerned. They held a private meeting to discuss their largest customer, and asked Rydbeck to have a serious talk with Ivar. But when Rydbeck approached Ivar, everything seemed fine. Ivar said he would be happy to share any details, but didn’t have time right then because he was dashing off to Paris for a meeting with British Prime Minister Ramsay MacDonald, German Chancellor Heinrich Brüning, and French Council President Pierre Laval. They had asked him to come advise them about the ongoing financial crisis.81 Rydbeck must have felt embarrassed to be pushing his pedestrian concerns on such an important man.

  Durant, on the other hand, was undeterred. He tried various tactics to get information from Ivar, claiming a large shareholder of Kreuger & Toll thought the share price might be too low,82 and even sending messages in code, with a separate translation key.83 Speculators had heard the rumors about Ivar, and were increasing their short sales, which was further depressing the prices of Ivar’s companies’ securities.

  Meanwhile, the sporadic answers Ivar sent to Durant kept changing, and the numbers were inconsistent. First, Ivar would send a set of financial statements; then he would cable “updates” to account for previous errors. These responses were not comforting the partners of Lee Higginson. One cable, which Ivar sent to George Murnane, one of Durant’s partners, was particularly unnerving. Ivar wrote, “Naturally the division of the assets between Swedish Match and International Match is somewhat arbitrary but during all these years in any such division we have always carefully guarded that the interests of International Match have in the first line been taken care of and the interests of Swedish Match have always been put in the second place.”84 Why would anyone believe Swedish Match would agree to take “second place” behind the American interests?

  The Lee Higginson partners were especially puzzled by International Match’s entries for “Deposits with Affiliated Companies” and “Additional Investments.” Ivar explained to Murnane that these lines included “assets which logically should be owned by International Match and which are intended ultimately to be owned by that company but which for very strong reasons for the time being rather ought to be carried in the books of Swedish Match Company.”85 With every such word, Ivar’s reputation fell. Assets either were owned or not owned. There was no in between. Ivar’s latest missives suggested that International Match didn’t have any real assets or earnings; instead, the company depended entirely on Ivar’s promises.

  Ivar repeatedly mentioned “Boliden” in his correspondence with Lee Higginson. The Boliden Mining Company was Ivar’s secret treasure and his last hope. Few people knew about the Boliden gold mines, which had been discovered in 1924, in the Norlaand district of Sweden, and were reputed to have the third-largest gold deposits in the world, along with rich veins of silver and other precious metals. Ivar estimated that the gold mines alone would generate more than 8 million dollars a y
ear. He had bought 80 percent of Boliden through Rydbeck’s bank for 14 million dollars in 1929, and had tried to sell an interest in Boliden only once, to the Guggenheim family. When the Guggenheims decided not to buy, Ivar maintained his stake, which he determined to keep confidential until it became clear how much precious metal was there.86

  By the end of 1931, Ivar had known he would need to use his interest in Boliden to raise cash. He went to the Riksbank, Sweden’s central bank, in October 1931 and asked for a loan of 40 million kronor (about 10 million dollars). They said yes, but only if he would pledge his Boliden shares as security. Ivar said he was willing to do that but, because of his interlocking accounts, the transfer of shares would be difficult.

  Oscar Rydbeck’s bank already held the Boliden shares, as security for a different loan. Ivar was sure he could persuade Rydbeck to take German bonds - his only other major asset, from the 1929 Germany deal - as security in place of the Boliden shares. However, International Match held the German bonds. Ivar didn’t dare ask anyone in America if they would let him substitute some other asset for the German bonds. They already were asking too many questions about Ivar’s intermingled accounts.

  Fortunately, Ivar previously had insisted that International Match’s German bonds be held outside the United States, at the Deutsche Union Bank in Berlin, and the directors had given him the right to put the bonds there back in 1924. There was the solution. Ivar ordered that bank to transfer the bonds to the Nederlandish Bank, the small Copenhagen bank Ivar controlled. Nederlandish then listed the German bonds in the name of Rydbeck’s bank. That switch persuaded Rydbeck to release the Boliden shares to the Riksbank for Ivar’s loan. It was a complex quadruple play - German bank to Dutch bank to Swedish bank to Swedish central bank - that secured a 10 million dollar last-gasp loan for Ivar.

  What was International Match left with? Ivar needed something of value to give his American company in exchange for the German bonds. Should he use the forged Italian treasury bills? Ivar decided he didn’t dare send them to Deutsche Union Bank, to replace the German bonds. Instead, he kept them at the Match Palace, and sent some other bonds, including some real Italian bills he held. Now, Rydbeck’s bank held the German bonds, the Riksbank held the Boliden shares, and International Match was left with a potpourri of assets, along with the hope that some day the German bonds would be returned.87

  On November 23, 1931, Ivar left Stockholm for the last time with the final 10 million dollars he could squeeze from his home country. He had emerged from solitude, once again seemingly energized and hopeful. Ivar saw Ingeborg Eberth, his neighbor at Villagatan, for a concluding visit.88 She played a few songs on the piano, and found Ivar to be “the same quiet, calm man as always.”89

  Even Sigurd Hennig, the accountant who thought he had discovered a great fraud at Kreuger & Toll, believed Ivar was back on track. Ivar showed Hennig the most recent balance sheet for the company, and explained how the value of the Boliden mines more than made up for any shortcomings elsewhere. Ivar said, “You see, Hennig, the holes are not as big as you seem to think.”90 Ivar also wrote to assure Durant about the “loan against the shares in the Boliden Mine as collateral. These shares as you may know are owned by me privately.”91

  Ivar stopped in Paris for a few weeks, to check on the construction of his new apartment there, and then sailed to New York on Bremen, another of his favorite luxury liners. On board, he received an optimistic cable from Krister Littorin, who was worried about Ivar’s mood swings, and wanted to encourage positive thoughts. Littorin wrote, “Unbelievable change in sentiment … rapidly rising market with good volume.”92 The facts told a different story: Ivar’s famous B Shares, the ones with 1/1000 of a vote, had risen as high as 449 but now were trading below 100.

  Ivar arrived just before Christmas, and the New York papers reported his arrival with the usual fanfare. That day, on the floor of the New York Stock Exchange, Kreuger & Toll shares were the only securities among the fifteen most actively traded to close with a gain. The Herald Tribune reported on Ivar’s business in America: “It is also expected that he will confer with officials of the International Telephone & Telegraph Company in regard to the IT&T-Ericsson Telephone deal.”93

  11

  COMING BACK TO AMERICA

  Ivar spent the holidays in New York, and then toured the country in what could be described as either a victory lap or a farewell trip. He saw his friend President Hoover in Washington, and publicly reassured Hoover and the American people about the problems in Europe.1 He traveled to Chicago, the city where he had found his first job by posing as an architect, and then went on to Boston and Philadelphia. During this trip, he gave rousing speeches to brokers about the future of his companies, and claimed earnings were down just 10 percent from 1930.

  Ivar had tried to persuade Kreuger & Toll’s board to issue a report announcing high profits, and promising to continue to pay dividends, but Oscar Rydbeck balked. Although Ivar was chairman of the board, the increasingly cautious Rydbeck held some influence among the Swedish directors. They couldn’t understand how Ivar could make claims about the company’s finances in early January; the accounting books still wouldn’t be closed for months. They also didn’t understand how Kreuger & Toll could raise enough cash to pay dividends.

  Given this dissent, Ivar issued a Kreuger & Toll report under his own name only, explaining that “Stockholm is always interfering with the wording of my statements.”2 The new report estimated net profits for 1931 at 21 million dollars, down from 32.7 million dollars the previous year, but still substantial. Ivar also announced that Kreuger & Toll had acquired Boliden, “one of the largest and richest gold mines in the world.”3 The report bolstered his sales pitches to brokers, some of whom spread word that Ivar’s securities were a buy.

  Back in New York, Ivar sought to raise more funds backed by Boliden shares. He hoped that no one in America would discover the fact that he already had pledged the Boliden shares to the Swedish central bank for the 10 million dollar loan. But Ivar’s efforts failed well before he got to any discussion about whether Boliden shares would be adequate collateral. Increasingly, opinion was turning against Ivar.

  Durant still stood behind Ivar and International Match; he had no choice. But he told Ivar there was no chance of another issue on the New York Stock Exchange, or probably anywhere else. America was deep in an economic depression and no one was buying shares of any kind. Simply put, Durant would not be able to raise any more money for International Match. After Durant told Ivar no, Ivar called on Sune Schéle, a Swedish stockbroker in New York who had been Ivar’s director of operations in India. Ivar asked about listing the shares of a new company backed by Boliden shares on the Curb Exchange, the place Ivar’s first gold debentures had been listed in 1923. But no matter how far Ivar stepped down the prestige ladder, everyone said no. The Americans seemed to be done with investing in Ivar.

  Ivar met with Jordahl, his risk-loving Norwegian friend, and they decided to try gambling on stocks to generate some cash to sustain Ivar’s companies for a few more months. They didn’t want anyone to trace the trades to Ivar or Jordahl; that would lead to even more vicious rumors. They considered trading through Alexis Aminoff, the young Swede who managed Ivar’s business in New York, but Aminoff’s office was near Lee Higginson’s and they worried he might be discovered. Ivar thought for a moment, and then realized he had the perfect surrogate trader, particularly given the season. It was Christmas in New York. Time for Santa Claus.

  Sune Schéle introduced Ivar to a well-known New York broker, and Ivar told the man he had a wealthy friend who wanted to speculate on the Curb Exchange. The trades would be executed through Hirsch Lilienthal and Barr Cohen, two other US brokers. Ivar would send 50,000 shares of Kreuger & Toll as collateral for whatever this man wanted to buy. Ivar said the man’s name was Karl Lange.

  The broker made a few calls and found that a man called Lange was listed as the operator of a restaurant in Stockholm. He was described as sto
cky, with a white beard. The broker immediately phoned Durant, who called Ivar.

  “Ivar, do you know a man named Karl Lange? Is he a responsible fellow?” Durant asked. Durant was losing faith in Ivar’s companies, but he apparently wasn’t as suspicious about Ivar’s Swedish friends. After Ivar vouched for Lange, Durant informed the broker that “you have nothing to worry about.”4

  The day after Christmas, Ivar sent a cable to Krister Littorin:Please have Lange deposit 50,000 American certificates in favor of Hirsch Lilienthal and 50,000 in favor of Barr Cohen and Company and ask Lange to send separate telegrams to each of them to deliver them to Schéle. Have explained to Donald that Lange got a credit against them. Please telegraph Schéle.5

  Lange immediately sent instructions from Stockholm to the two brokers. He said he wanted to use all of the money to buy Kreuger & Toll shares. With Lange’s purchases, Ivar could prop up the shares of Kreuger & Toll in the United States. The Americans would see the purchases as a surge in demand for Ivar’s shares.

  But the brokers saw through the scheme immediately and called the bluff. They responded that Lange was welcome to buy any shares he liked - that is, any shares except those of companies Ivar controlled. When Lange didn’t place any orders, the brokers returned the collateral. Kreuger & Toll shares continued to plummet in value.6

  In early 1932, several men from Price Waterhouse arrived in Stockholm to inspect Ericsson’s earnings, as Ivar had agreed they could during his negotiations with IT&T, the talks that had led IT&T to give him a check for 11 million dollars. It didn’t take the accountants long to find discrepancies. Ivar had represented that Ericsson had 6 million dollars of “cash in hand and in banks.” Price Waterhouse discovered that the Swedish term for this entry translated as “cash, bankers and on deposit.” The difference was crucial. Ericsson didn’t actually have 6 million dollars of cash; instead, that cash was “on deposit” at Kreuger & Toll. Ericsson had some German government bonds as security, but those had declined in value and were hardly the same as cash.