Glitnir hf. files US$2bn legal claim against Jón Ásgeir Jóhannesson and other former Directors and Shareholders, alleging fraud; also sues PwC for malpractice and negligence
- Lawsuit filed in New York court
- Freezing order secured in London on Jóhannesson’s personal assets worldwide
- Press conference to be held at 14.30 today in Reykjavik
New York, May 12, 2010 – Glitnir hf. announces that it has commenced legal action in the Supreme Court of the State of New York against Jón Ásgeir Jóhannesson, formerly its principal shareholder, Lárus Welding, previously Glitnir’s Chief Executive, Thorsteinn Jonsson, its former Chairman, and other former directors, shareholders and third parties associated with Jóhannesson, for fraudulently and unlawfully draining more than $2 billion out of the Bank.
Glitnir is also taking action against its former auditors PricewaterhouseCoopers (PwC), for facilitating and helping to conceal the fraudulent transactions engineered by Jóhannesson and his associates, which ultimately led to the Bank’s collapse in October 2008.
Glitnir has also secured a freezing order from the High Court in London against Jón Ásgeir Jóhannesson’s worldwide assets, including two apartments in Manhattan’s exclusive Gramercy Park neighbourhood, for which he paid approximately $25 million.
Jóhannesson – beneficial owner of the now-defunct Baugur investment group – is understood to be domiciled in the United Kingdom, and still holds a number of high-profile directorships there, including Iceland Foods and House of Fraser, two of the UK’s best-known retailers.
The lawsuit, filed in New York on May 11, shows:
- How a cabal of businessmen led by Jóhannesson conspired to systematically loot Glitnir in order to prop up their own failing companies
- How Jóhannesson and his co-conspirators seized control of Glitnir, removing or sidelining experienced Bank employees – and abused this control to place the Bank in extreme financial peril
- How Jóhannesson, Welding and the other Defendants facilitated and concealed their diversions from the Bank by overriding Glitner’s financial risk controls, violating Iceland’s banking laws, and orchestrating a blizzard of convoluted stock “parking” transactions
- How the individual Defendants, with the complicity of Glitnir’s auditor PwC, raised $1bn from investors in New York without revealing the truth about the Bank’s financial exposures to Jóhannesson and his co-conspirators
- How the Defendants’ transactions cost Glitnir more than $2bn and contributed significantly to the Bank’s collapse
A full copy of the New York court action will be available at www.glitnirbank.com .
The litigation is being piloted by Glitnir’s Winding-Up Board, which was appointed by the Icelandic Court to supervise the liquidation of the Bank. It follows a thorough forensic review of Glitnir’s management and transactions in the years leading up to the Bank’s collapse.
On behalf of Glitnir’s creditors, the Winding-Up Board is determined to pursue recovery of assets looted from Glitnir by Jóhannesson and the other Defendants, and believes that the New York court is the most suitable forum for doing so. Central to the case is the $1bn bond issue sold in September 2007 to New York investors who were misled as to Glitnir’s financial exposures. Around 90% of Glitnir’s estimated 9,000 creditors are thought to be based outside Iceland.
“There is evidence supporting the allegation that Glitnir was robbed from the inside,” said Steinunn Guðbjartsdóttir, chair of the Glitnir Winding-Up Board. “Today’s legal action is a positive step aimed at making accountable the small number of people whose intent or negligence contributed significantly to Glitnir’s demise.”
Glitnir has already filed separate litigation against some of the individual Defendants in Iceland. It has also made a relevant submission to Iceland’s Special Prosecutor and Icelandic authorities. The Icelandic Government has also been notified about today’s litigation.
Last month, a report from Iceland’s Special Investigation Commission ruled that Iceland’s financial collapse was partly caused by the disproportionate exercise influenced over the country’s banks by a small group of businessmen, including Jón Ásgeir Jóhannesson.
Glitnir’s Winding-Up Board’s legal representation is Steptoe & Johnson, LLP (New York) and Slaughter and May (London).
The Glitnir Winding-Up Board will hold a press conference today at the Hilton Reykjavik Nordica, 2nd floor, Room D, at 14.30 Reykjavik time (15.30 London time, 10.30 New York time). The press conference will be convened by Steinunn Guðbjartsdóttir and Pall Eiriksson of the Winding-Up Board.
A telephone dial-in to the press conference will be made available for the international media. The dial-in is +354 7557755, and the access code is: 5155200.
For more information, please contact:
Rory Godson, Powerscourt (London)
Tel: +44 7250 1446
Conal Walsh, Powerscourt (London)
Tel: + 44 7250 1446
Lisa Kavanagh, Powerscourt (London)
Tel: + 44 7250 1446
John Dudzinsky, APCO Worldwide (New York)
Tel: +1 212 300 1817
Notes to editors:
The legal claim:
A full copy of the New York court action will be available at www.glitnirbank.com . It accuses Jón Ásgeir Jóhannesson, who controlled around 39% of Glitnir’s shares via various entities, of seizing effective executive control of the Bank in April 2007, by ousting Glitnir’s directors and senior management and replacing them with Welding, Jonsson and other accomplices. Jóhannesson and the other named Defendants then used their control over the Bank to issue massive loans to, and fund a series of transactions with, other companies they controlled. In doing so, they flouted the Bank’s internal risk policies, as well as Iceland’s laws and financial regulations governing large exposure to connected parties.
To finance these diversions, the individual Defendants relied heavily on funds which Glitnir raised in the United States throughout 2007 and, in particular, through the $1bn sale of Bonds to investors located in New York and elsewhere in the United States in September 2007. The extent of Glitnir’s financial exposure to Jóhannesson and the companies and individuals who were connected to him was fraudulently hidden from US investors at the time of this fundraising.
In the event, Jóhannesson’s looting of Glitnir failed to save Baugur, his own company, from failure; nor have the sums the individual Defendants siphoned from Glitnir ever been repaid to the Bank. The transactions made no economic sense for Glitnir, and put the Bank – and, by extension, its creditors – in extreme financial peril. Having depleted Glitnir’s cash reserves, the individual Defendants left the Bank heavily exposed to the global credit crunch which struck Iceland’s markets during the summer of 2007, and contributed significantly to its eventual bankruptcy.
Jóhannesson and the other individual Defendants could not have succeeded in their schemes without the complicity of PwC. PwC knew about Glitnir’s irregular related party exposures, reviewed and signed off on Glitnir financial statements which grossly misrepresented these exposures, and facilitated Glitnir’s fraudulent fundraising in New York.
The Defendants in the case are:
- Jón Ásgeir Jóhannesson, former Executive Chairman of Baugur; former Chairman of FL Group; principal shareholder in both companies and, through them, controlled around 39% of shares in Glitnir
- Thorsteinn Jonsson, former Chairman of the Board, Glitnir; also former vice-Chairman of FL Group
- Jón Sigurðsson, former Director of Glitnir; also former Deputy CEO of FL Group
- Lárus Welding, former CEO and Chairman of the Risk Committee, Glitnir
- Pálmi Haraldsson, former vice chairman of FL Group's Board of Directors
- Hannes Smarason, former CEO of FL Group and former Director, Glitnir
- Ingibjörg Stefanía Pálmadóttir, wife of Jón Ásgeir Jóhannesson; former Director, Baugur
- PwC, auditor to Glitnir; performed reviews and issued letters on which investors relied in connection with the September 2007 New York bond offering
Separate to the New York litigation, the Winding-Up Board of Glitnir secured on May 11, 2010 an order from the High Court in London, freezing the worldwide assets of Jón Ásgeir Jóhannesson. Freezing orders have also been applied for in the Icelandic court against Jóhannesson, Welding and Pálmi Haraldsson, former vice chairman of FL Group's Board of Directors.
Glitnir, a public company, was until its collapse a full-service bank, providing corporate banking, investment banking, capital markets, investment management and retail banking services. It had offices in ten countries, including Manhattan, and its market capitalisation once stood at more than €4bn.
Hit by the global financial crisis in 2007-08, and financially weakened by the fraudulent transactions of the individual Defendants, Glitnir declared bankruptcy in October 2008. It is now the subject of a court-supervised moratorium proceeding in Iceland, under the supervision of Iceland’s Financial Supervisory Authority and a Resolution Committee. An Icelandic court has appointed a Winding-Up Board, headed by Steinunn Guðbjartsdóttir, to supervise the liquidation of the Bank’s assets. The Winding-Up Board and Resolution Committee have authorised this litigation.
Glitnir’s Legal Representation
Glitnir is represented in the New York action by Michael Campion Miller, Robbin Itkin, Evan Glassman and Katherine Piper from Steptoe & Johnson, LLP. In London, Glitnir is represented by Slaughter and May.
A full copy of the New York court action