The ‘greatest ever swindler’

The Match King: Ivar Kreuger, The Financial Genius Behind a Century of Wall Street Scandals
By Frank Partnoy
PublicAffairs $26.95, Profile Books, £18.99

Memo to Bernard Madoff: do not pick up The Match King in the prison library. Inmate No 61727-054 may have time on his hands but he will not enjoy reading about one of his predecessors in Wall Street’s rogues gallery.

Non-felons, however, will find Frank Partnoy’s tale of the meteoric rise and bloody end of Ivar Kreuger, the Swedish industrialist who dazzled investors in the US and Europe until his Ponzi scheme disintegrated after the 1929 crash, an enthralling cautionary tale of the recurring excesses of global finance.

As portrayed by Partnoy, a law professor at the University of San Diego, Kreuger was no Madoff, a low-profile broker who lured investors with the promise of steady, solid returns. As befits the Jazz Age, Kreuger was a crook with vision, ambition and a taste for the good life – cavorting with Greta Garbo, counselling President Herbert Hoover on world affairs and discussing high finance with Wall Street’s finest.

His plan for riches was suitably grandiose: to dislodge JPMorgan – then run by John Pierpont’s son Jack – as the lender of choice to governments in the western world while building a global match-making empire.

For a while, it worked. As countries from France and Germany to Estonia and Ecuador struggled to make ends meet in the harsh post-war economic climate, Kreuger, with a penchant for bribes, persuaded governments to accept loans from his corporate empire in return for national match monopolies.

But where did the “Match King” get the money to subsidise half of the globe? Not from the humble business of making matches or his other, mostly failed, forays into moviemaking, construction and commodities.

Kreuger made money from money, offering hefty dividends to attract investors to the repeated share offerings from his companies. Each capital raising was used to pay dividends from the previous ones as well as for government loans: a classic Ponzi scheme with the added kickers of secret slush companies and false financial statements.

In the process of swindling scores of investors, Kreuger’s brilliant, if bent, financial mind came up with innovations still in use such as non-voting “B” shares and off-balance-sheet vehicles.

But perhaps his biggest intuition was to exploit the American investing public’s craving for the Next Big Thing.

Here, Mr Partnoy’s narrative comes into its own. The author displays a vivid touch in describing the Swedish parvenu’s successful efforts to infiltrate the upper echelons of US finance.

Wishful-thinking bankers from Lee Higginson, a blue-blooded investment firm, a credulous auditor from Ernst & Ernst, a respected accounting firm, and the faceless mass of gullible investors are compellingly drawn figures – part accomplices, part victims of Kreuger’s bold failure.

As with all tragedies, a sense of foreboding pervades. Few readers will be shocked to learn that the market turbulence and economic distress caused by the Great Crash of 1929 deprived Kreuger of financial oxygen. His cascade of companies could no longer pay dividends and procure money for loans-for-monopolies deals.

By March 1932, the 52-year-old Kreuger was an emotional and physical wreck, and aware his enterprise was about to be uncovered as a massive fraud. His end was as dramatic as his life: Kreuger killed himself with a single shot to the heart in bed in his Paris apartment.

Or did he? The over-long coda of the book is devoted to rehashing conspiracy theories over whether Kreuger had been killed, or staged an elaborate false suicide. Partnoy’s musings are inconclusive and add little to our understanding of Kreuger’s actions, partly because the author is a better historian and financial analyst than whodunnit writer.

And partly because Kreuger’s death is far less important than his long-forgotten legacy. As the discovery of his fraud sent capital markets reeling and left investors, governments and banks like Lee Higginson bankrupt, the US authorities responded by building a regulatory system whose main pillars still survive. Without Kreuger, the Securities and Exchange Commission and GAAP accounting rules, among others, might never have been created.

As Mr Partnoy says, the post-1929 financial architecture was not, as is commonly believed, the result of the stock market crash, but the “political reaction to a single bullet and to one man, who was labelled...‘the greatest swindler in history’”.

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