When Swedish investor Ivar Kreuger’s billion-dollar international business conglomerate crumbled in early 1932, Time Magazine labeled it "one of the ugliest affairs in business history."
And when Kreuger killed himself on March 12 of that year, what first seemed a tragedy brought on by stress soon led to the discovery of one of the Depression decade’s greatest cases of securities fraud.
Following technical school and work on construction projects in the U.S., Latin America and South Africa, Kreuger joined Paul Toll in a Swedish engineering partnership in 1908. Kreuger soon turned to mergers and acquisitions, combining his family’s match company with local competitors to create United Swedish Match Factories in 1913.
After World War I, Kreuger formed alliances with Diamond Match in the U.S., with Bryant & May in the U.K., and with a series of “cash-poor governments” that granted “match monopolies in return for loans” from Kreueger’s corporations, according to Time. In 1929, Kreuger lent $125 million to Germany in exchange for an agreement excluding Russian-made matches from the Reich.
By that point, Kreuger & Toll controlled two-thirds of global match production -- and much more besides. The firm was at the center of a web of holdings that included dozens of industrial corporations, mines, telephone and telegraph operating networks, banks and financial companies, and mortgage enterprises.
But the stock-market crash of 1929 triggered a steady decline in Kreuger & Toll's market value, which accelerated after Kreuger's death. Shares that had been selling for nearly $43 at their 1929 peak closed at $2.87 on March 16, 1932.
The other shoe dropped when efforts commenced to analyze the dead financier’s records. Lee, Higginson -- the securities company that had helped launch General Electric in 1892 -- had underwritten Kreuger securities for the U.S. market, without undertaking an independent audit.
“One of the most charmingly persuasive men who ever lived,” according to Time, Kreuger had assured the company that three unquestionably honest Swedish accounting firms had certified Kreuger & Toll's accounts.
Following Kreuger's suicide, the Swedish government hired Price Waterhouse to investigate. Their preliminary report affirmed that Krueger & Toll’s 1930 balance sheet “grossly misrepresented their true financial position,” that Kreuger had erased debts owed to subsidiaries and that profits “were grossly overstated by means of fictitious entries.”
Worse, under pressure in 1931, Kreuger had commissioned forgeries of millions of pounds in Italian state bonds, distributing them among his subsidiaries “in return for good bonds upon which he could borrow.” Once this further fraud surfaced, Krueger & Toll’s U.S. division collapsed amid losses of $200 million, half of the firm's global losses.
It took only a few months for Lee, Higginson -- Kreuger's underwriters -- to disband. But it would take five years to untangle the accounts of the 400 firms in Kreuger's web.
(Philip Scranton is a Board of Governors professor of the History of Industry and Technology at the University of Rutgers at Camden and the editor-in-chief of Enterprise and Society. He writes "This Week in the Great Depression" for the Echoes blog. The opinions expressed are his own.)
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