The match king
who lent to states
On 12 March 1932, Ivar Kreuger was found dead in his Paris apartment. The Swedish industrialist controlled a large share of the world's matches and lent money to governments. A few weeks later it emerged that part of his edifice rested on assets that did not exist.
A monopoly in exchange for a loan
In the 1920s the Swede Ivar Kreuger gathered match makers across several continents until he controlled, by most estimates, between two-thirds and three-quarters of world production. His method was new. In a postwar Europe starved of credit, he lent to governments and received in return the match monopoly on their territory. France got $75 million in 1927, Germany $125 million in 1929, then Poland, Hungary, Romania and others: close to $400 million in all by 1930.
To his shareholders Kreuger paid high, regular dividends. But the crash of 1929 dried up credit, and the group financed part of its payouts with fresh capital rather than profits. In early 1932 he asked the Bank of Sweden for further support; the government first demanded full accounts. On 12 March Kreuger was found dead in Paris, a death investigators ruled self-inflicted. The group was declared bankrupt at the end of the month.
The Price Waterhouse accountants brought in to untangle the books found that assets claimed at some $250 million did not exist, among them Italian bonds bearing forged signatures. Some of these securities appeared in the financial statements that had reassured investors.
Trust stood in for verification
For years no one had looked closely. Kreuger's credit rested on his stature, his loans to states and the regularity of his dividends far more than on accounts that anyone had thoroughly audited. When credit tightened, the edifice gave way. Thousands of Swedish small holders and small banks lost savings placed in the group's securities, and Prime Minister Carl Gustaf Ekman left office in the summer of 1932.
In the United States the affair is counted among those that weighed on the Securities Acts of 1933 and 1934, the foundation of mandatory financial disclosure and independent auditing. The mechanism recalls more recent frauds: paying returns out of newcomers' money for as long as confidence lasts. It leaves a question that is still current: who reads the books of the person we trust without reading them?
A reputation is no substitute for reading the accounts, and the gap shows only the day someone opens the books.