The Match King

by Frank Partnoy

  Of course, the lawyers did much better than the investors. Lawyers for the trustee charged more than 100,000 dollars per year.60 Most of New York’s leading lawyers, including Samuel Untermyer, who famously had elicited Pierpont Morgan’s remarks about the importance of character during earlier congressional hearings,61 earned large fees from the disputes about Ivar’s remaining assets.

  One reason the lawyers made so much money was that the allegations about Ivar’s schemes turned out not to be as clear as Price Waterhouse and the public initially had believed. For example, although International Match did not disclose the names of its offshore subsidiaries to investors, it did note that one of its primary assets was a 75 million dollar credit with one subsidiary, which turned out to be Continental Investment, in Liechtenstein. A 15 million dollar credit with another subsidiary turned out to be to Garanta, in Holland. Those companies were secret, but real. It took many billable hours for the lawyers to uncover the facts about Continental and Garanta.

  If Ivar had been around, these facts would have made it difficult to sustain a case against him. Everyone, including International Match’s accountants, bankers, and directors, originally had agreed that these two subsidiaries would pay interest to International Match on a sliding scale determined exclusively at Ivar’s discretion. These parties all wanted Ivar to have discretion so International Match did not receive more than the funds necessary to cover its dividends.62 That was basic tax planning, and it was transparent. International Match’s income really had been up to Ivar, and that was no mystery. Although investors complained at the end, the truth was that they hadn’t had much of a claim from the beginning, based on their own agreement.

  And where was the fraud at International Match? Ivar had transferred 50 million dollars of German bonds held by International Match to a bank he controlled to use as collateral for a loan. But he had replaced those bonds with substitute collateral, and the directors of International Match had given him the right to make such a transfer. Ivar had claimed to have deals with Italy and Spain, when he apparently did not. But he made those representations in 1931, after he already had finished raising money in America.63 The selling prospectuses for his American securities had never mentioned Italy or Spain. The Italian treasury bills looked bad, and they were obviously forgeries. But they didn’t affect International Match.

  One should not conclude from this revisionist history that Ivar was a saint. He was not. Nor was he forthcoming in his dealings with investors, accountants, and bankers. However, given the rules of the game at the time, it is difficult to say that much of what Ivar did was illegal. That shouldn’t be surprising. Ivar had an acute sense of where the legal boundaries fell, and he observed them carefully.

  As is the case for many business people, Ivar walked a line between sharp business practices and maintaining an ethical reputation. The simple conclusion that Ivar was a crook is neither accurate nor useful. Like most great financiers, he has a more complicated story. The lesson of Ivar Kreuger is not that his businesses were illegal. It is that they were alegal.

  Financial scandals are complicated and their investigations typically lead to the search for a human face: John Law of the Mississippi Scheme, Robert Harley of the South Sea Bubble, Michael Milken of Drexel Burnham Lambert, Jeff Skilling of Enron, or Bernard Madoff. Ivar Kreuger became the face of the International Match scandal, but he should not have been the only target. Overeager investors, sloppy auditors, and pushover directors also bear much of the blame. Holders of Ivar’s securities didn’t demand more detailed information about his businesses. Ivar’s auditors accepted his word as truth even when facts suggested otherwise. His directors did virtually nothing except cash their annual stipends.

  If these people had scrutinized Ivar’s financial statements during the mid- 1920s, they might have constrained the exponential growth of his capital raising. If they had simply demanded to know how Ivar could pay 25 percent dividends while receiving 8 percent interest on government loans, they might have generated enough skepticism to dampen the meteoric rise in the prices of his securities. But no one wanted to question Ivar on the way up, and his investors, auditors, and directors remained silent.

  As is the case in many financial scandals, other so-called gatekeepers also were culpable. Ivar’s bankers at Lee Higginson asked some questions, but too few and too late; that venerable bank collapsed as a result. Regulators and exchanges, including the New York Stock Exchange, backed down from any serious inquiry about the soundness of Ivar’s companies. Securities analysts and journalists didn’t probe Ivar’s slim financial reports. Without constant adoring support from the media, Ivar might not have acquired such a lustrous reputation.

  Undoubtedly, Ivar Kreuger should be held accountable for the collapse of his companies. But in the typical rush to pin blame for a financial scandal on one human being, he wrongly and unfairly came to bear sole responsibility. The truth is that there is plenty of blame to go around.

  Few of the people Ivar touched had happy endings. The list of his 15,000-plus creditors ran for 200 pages and included such mainstays as Harvard College and the Chase Securities Corporation.64 The bankruptcy estate repaid some of these creditors, but most of them ended up losing money.

  Krister Littorin and Karin Bökman were devastated by the passing of their dear friend, and were traumatized by their role in what seemed to be a massive fraud. They quietly disappeared into anonymity in Sweden. Torsten Kreuger was sentenced to three and a half years at hard labor for falsifying financial statements, although he was released after a year.65 He spent the rest of his life trying, and failing, to repair his family’s reputation.

  Ivar’s accountants suffered little punishment. Sigurd Hennig, Ivar’s bookkeeper and childhood friend, was arrested, but acquitted.66 Anton Wendler, Ivar’s Swedish accountant, was jailed for a short time for failing to detect false statements in Garanta’s balance sheet, including the apparently inflated value of some of Ericsson’s assets.67

  A.D. Berning was praised, not punished. After his fifteen minutes of fame before Congress, Berning returned to Ernst & Ernst and his Greenwich Village home, where his only accomplishment of note was to be elected a director of the Madison Square Boys Club.68 He retired in 1956, and for his remaining twenty-four years remained a member of the Sleepy Hollow Country Club, where one can imagine him meticulously filling in golf scorecards with neatly crossed sevens.

  Anders Jordahl, Ivar’s once-wild Norwegian sidekick, escaped to Canada, but eventually was brought back and filed for bankruptcy. Jordahl and his new wife, Mary, were embroiled for years in lawsuits related to Ivar’s American business. When they moved the contents of a safe deposit box in New York to a bank in New Jersey,69 the trustee demanded access and took the case to the United States Supreme Court. The trustee won, but when the box was opened it contained just a handful of shares, blank papers, and an empty envelope.70 Jordahl later told the trustee Ivar had been “very close-mouthed and told him nothing except immediate matters in which he was directly concerned.”71

  Donald Durant refused to believe Ivar had killed himself, and he would not use the word suicide in describing Ivar’s death. He sold his mansion on 89th and West End, and moved into a smaller midtown apartment.72 He took a job at Cassett & Co., a small investment house, but resigned a year later and went into business for himself. He led an undistinguished and brief life, and died at the age of fifty-three on the northbound platform of the Hanover Square subway station in New York. The cause of death was reported as a heart attack. 73

  The Stockholm police questioned Ernst August Hoffman, the ex-clerk Ivar had hired as president of Continental, but he was released. Karl Lange, the Santa Claus lookalike who had “audited” Garanta, didn’t fare as well. The day after International Match was put into receivership, the Swedish police arrested Lange. He was charged with assisting Ivar in falsifying financial statements.74

  It emerged that Oscar Rydbeck, whose bank Ivar still owed 120 million kronor, had known
that Ivar used Lange as a “nominee” to make and receive payments.75 Rydbeck avoided prison, but his reputation was destroyed, particularly when investigators learned that he had permitted Ivar to transfer assets at will among his companies.76 Rydbeck lost even more credibility when he tried to explain that “I now know that I was considered necessary in many respects, yet I was never a real friend.”77

  The public trustees of Kreuger & Toll didn’t spare Ivar’s 80-year-old father, Ernst August.78 They sued him within months of Ivar’s reported suicide, even though he had limited assets. Ivar’s mother, Jenny, remained in good health; at the age of 77, she was nearly as strong as Ernst August.79 She insisted, “My son was a good man. It is too terrible. I cannot believe it.”80

  Government leaders, past and present, were tainted by revelations about their dealings with Ivar. Investigators tracked down former Spanish King Alfonso, in exile in Paris, who categorically denied any deal with Ivar; Primo de Rivera did not comment.81 Rumors swirled that Ivar had bribed Adolf Hitler, who called the allegations “stinking lies.”82 A 10,000 dollar check from Ivar brought down the Prime Minister of Sweden, Carl Gustav Ekman, the leader who had arranged last-minute financing for Ivar when Krister Littorin first called him about the Italian bills. When investigators discovered Ekman had cashed the check from Ivar, which was made out to “bearer,” the Prime Minister initially denied receiving it. But the next day, facing indisputable evidence that this “bearer” was him, and that witnesses saw him cash the check, Ekman agreed to repay the money and resign.83

  Meanwhile, Ivar’s junior employees were running off with whatever cash they could find. Just as Eric Landgren was found to have abused his expense account a decade earlier, Alexis Aminoff, Ivar’s New York assistant, was interrogated about club dues and other expenses.84 Investigators went through Aminoff’s gold-embossed red leather book of meticulously documented official accounts,85 but they didn’t find his brown paper bag stuffed with “special accounts,” including thousands of dollars of checks to “Myself,” and receipts for personal expenses such as cloth hangers and dental floss.86 Aminoff apparently milked Ivar’s New York bank accounts until he closed them on June 29, 1932, with a final withdrawal of $124.72.87

  Other than Durant, the directors of Ivar’s companies escaped without much scrutiny. International Match’s directors had served on an average of twenty corporate boards. Percy Rockefeller led the pack with nearly seventy, but even Donald Durant had been on eight boards.88 Although Durant was criticized and called to testify on numerous occasions, Percy Rockefeller emerged unscathed. He avoided the bankruptcy trustee by saying he was confined to his bed with a stomach disorder and would give testimony as soon as his doctor permitted.89 He probably really was sick, given that he still held 19,200 participating preferred shares of International Match, and 17,000 shares of Kreuger & Toll.90

  A few of Ivar’s critics profited from the aftermath. W. A. Fairburn, Ivar’s adversary from Diamond Match, made a profit of nearly 8 million dollars by repurchasing the 350,000 Diamond Match shares Ivar had bought through some banks just two years earlier.91 Professor William Z. Ripley, the Harvard economist who had warned about non-voting shares and inadequate disclosure years earlier, became an advisor to the committee of investors in the bankruptcy proceedings.92 J. P. Morgan & Co. regained its stature as the world’s leading lender.

  Greta Garbo had remained Ivar’s friend until the end. Witnesses gave accounts of seeing Greta and Ivar together on numerous occasions before Ivar’s reported suicide. Even after Garbo became a star, Ivar had remained her personal and business advisor. She was always thrilled to see him, and he loved being around another Swede of modest background who had become “somebody.” 93 Ivar also appreciated the fact that, although Garbo was famous, she still preferred to be incognito and refused interviews even more than he did. Ivar reportedly said Garbo was his “only true friend in America.” 94

  Ivar didn’t have a chance to advise Garbo as she renegotiated her contract with MGM, just after his reported suicide. MGM finally capitulated and promised her 250,000 dollars a film, an amount that gave Cole Porter the lyric, “You’re the top! You’re Garbo’s salary.”95 She was happy with the money, but still upset about the reports of Ivar’s suicide, and she boarded Gripsholm for Sweden on July 29.96

  Garbo spent several weeks on an island in the Stockholm archipelago, mostly alone or in the company of a handful of family and friends. The press reported that “she continues her Hollywood-style seclusion in Sweden, which the Swedes find puzzling and at variance with the old out-going Garbo who used to go out to clubs.”97 Although there were rumors that Garbo had lost a fortune when Ivar’s companies collapsed, she actually held just a few shares.98 Perhaps Ivar had suggested she sell before that fateful day in March 1932. Ivar didn’t leave Garbo any parting gifts, but when the bankruptcy trustee auctioned a castle and an island Ivar owned, Garbo purchased both.99 She would spend many weeks on that island, as alone as Ivar had been.

  The film industry, always one of Ivar’s favorite albeit unprofitable investments, benefited somewhat from his downfall. In late 1932, The Match King premiered, starring Warren William in the role of Paul Kroll, a fictionalized and one-dimensional version of the real Ivar Kreuger. The movie became a box office hit and an instant classic. The revised screenplay of The Match King was considerably different from the paean to Ivar the film producers had originally envisioned. The final cut was surprisingly true to the latest facts, including the loan-for-monopoly deals and the Italian treasury bill forgeries, and was compelling enough to survive as long as Swedish Match has. The film remains an occasional late-night feature on television, and recently was recommended by The New York Times, along with a note that Mr William played the Ivar Kreuger role with “bite and conviction.”100 Like Ivar’s life, the movie did not have a happy ending.

  14

  CODA

  Much has changed since that foggy night in Paris. Europe realigned after a second world war, and the French renamed Ivar’s street Avenue Franklin Delano Roosevelt, to show allegiance to the United States over Italy and its former king. New leaders and their businesses paved over the memories of Ivar Kreuger. In 1932, the notion that Ivar’s incredible story might slip from public memory would have seemed ludicrous. Yet that is precisely what happened.

  As memories faded, several authors tried to reinterpret the facts in various ways, some more plausible than others. The most common refrain was that Ivar, like Charles Ponzi, was simply a crook. This view was bolstered by rumors that spread during 1932 of Ivar’s misdeeds as a child and young adult. One classmate came forward to declare that Ivar had been a “young man completely lacking in principle, who cheated whenever he thought he could do it without being caught.”1 Others recalled how he had pocketed stones he did not know during a crystallography minerals exam, or copied a model steam engine instead of building one from scratch.2 Yet another reflected, “It wasn’t that he cheated more than any of us, he just did it better.”3

  One of the most widely told stories was about how Ivar had first come to America, fresh out of engineering school, with a couple of job references and a hundred dollars in cash. After two months, he had burned through the cash and was eating from garbage cans. Then, a knock on the door changed his life. Ivar shared a room with an architect, who had just moved out. One night, a client came by to check on plans for a small house he had commissioned from the architect. Ivar quickly lied and claimed he had taken over the plans, which would be finished the next day. The man was delighted by Ivar’s finished work, and paid him 50 dollars, more than he had earned since arriving in America.

  As the story went, the success of this scheme energized Ivar, and showed him that he could succeed only through lies and schemes. Then, the rest of Ivar’s life became one scheme after another.

  That story was attractive to some people, especially the victims of Ivar’s collapse. But it was too simple. It ignored the real wealth Ivar created throughout his career, and the
real businesses he established, not only in matches, but in telecommunications, mining, commodities, and film. It ignored Ivar’s financial innovations, and the crucial fact that his companies paid double-digit dividends for more than two decades before they collapsed. In contrast, Charles Ponzi’s scheme lasted just a few months.

  Other writers, primarily in Sweden, had a radically different perspective. To them, Ivar was a national hero, a brilliant man whose competitors abused him, profited from his demise, and then destroyed his good reputation. Swedish artists in particular came quickly to Ivar’s defense. The Swedish writer Siegred Siewerts staged a sympathetic drama about Ivar in the Stockholm Royal Theater. A Panic, a film that sought to rehabilitate opinion about Ivar, premiered in Copenhagen in 1939.4

  Most notably, Torsten Kreuger became convinced his brother was murdered. He wrote a book, The Truth About Ivar Kreuger, which set forth criticisms ranging from credible evidence of the mistakes made by investigators to more dubious speculations about Ivar’s death. Torsten also funded attempts by others to exonerate his brother, in part because he lacked the credibility to make the case on his own. After the reports about Ivar’s schemes and Torsten’s year in prison, the Kreuger family name no longer commanded much authority. Torsten’s book, published in 1968, was not well received.

  More recently, some researchers in Sweden have cited evidence that lends some support for Torsten’s theory that Ivar was murdered, or at least raises serious questions about the evidence pointing to suicide. For example, the French police never found a spent cartridge, or an exit hole. Forensic evidence of the clean entry suggested the wound might have been caused by a sharp object, not a gun. The body was cremated quickly, before the autopsy ordered by the Swedish government and requested by Kreuger’s family could be performed. There even was a report that one doctor who examined the body suggested the man had been murdered.5