The Match King
This entered near the top of my reading list last year after I learned it was one of the core texts of short-seller Jim Chanos’s History of Fraud class at Yale University. To hear him describe it:
it is just a wonderful story of the greatest fraudster of the 1920s, Ivar Kruger who built this enormous empire on the back of raising money for European countries on the back of a match monopoly and how he became greater than J.P. Morgan by 1928 and basically dragged down mostly European banking system with his collapse in 1932.
The Match King: Ivar Kreuger, The Financial Genius Behind a Century of Wall Street Scandals
Frank Partnoy, 2009
America’s securities laws and its powerful SEC are commonly thought to be born out of the Great Depression. In fact they are more precisely the legacy of Ivar Kreuger, a gentlemanly Swede who borrowed vast sums of money from the American public to finance loan-for-monopoly deals in Europe and other projects.
His business interests in matchstick production were genuine but the numbers, including enormous dividends to investors, never really added up. Ivar was stubbornly secretive about the subsidiaries and off-balance sheet debt he used to keep the show on the road. In the decade before he killed himself (or was murdered, as some still suggest) in Paris in 1932 only the Wisconsin Railroad Commission asked for detailed information about earnings and liabilities and persisted in demanding it.
Ivar’s core business was smart but shoddy. He used the proceeds of a successful construction business in Stockholm (it built the City Hall and stadiums for the 1912 Olympics) to buy up match factories in Sweden and then around the world. There was competition from producers in the U.S. and Russia and so wherever possible, especially in war-ravaged European countries, Ivar approached governments to strike a deal: cheap loans in return for matchstick monopolies. Ivar tapped surplus capital from booming Wall Street and loaned it to France, Germany, Poland and elsewhere, being repaid through the high prices from matchstick cartels. The German contract was honoured by the Nazis and survived long after WWII.
Ivar’s pitch to investors lay not only in this compelling idea but also, quite simply, in the handsome payouts of 25 percent annually that he promised Those who did wonder about why the business was so lucrative assumed Ivar was an expert in negotiating secret, one-sided deals that might look unseemly if exposed to the disinfectant of publicity. In fact Ivar was using new loans to repay old ones and applied his genius to moving scarce cash and collateral around his different companies just in time to meet deadlines.
It was Italy that sank Ivar’s stellar reputation soon after his death as the Match companies defaulted and administrators took over. Ivar had sought a loan-for-monolpoly deal with Italy and had met senior fascists including Mussolini but no deal, according to the Italians, had been signed. Italian bonds with an enormous face value were discovered in the deceased Ivar’s safe and found to be obvious forgeries.
Ivar associated himself with famous names like Herbet Hoover, Greta Garbo and Percy Rockefeller. He agreed to be audited by Ernst & Ernst and then got lucky with the firm’s choice of its eager-to-please accountant AD Berning, whom he lavished with praise and gifts one week and froze out the next. And most fantastically of all, Ivar kept three phones on his desk, the middle phone a dummy with a foot-pedal to trigger the ring. This he would use to cut short boring meetings or, in one instance, to impress a visitor with incoming ‘phonecalls’ from Stalin and Mussolini. Partnoy and Jim Chanos, whose firm is currently runing a high-profile short position on Elon Musk’s Tesla, presumably want readers to understand the overwhelming effect of a founder’s charisma in spite of other pitfalls.
