$2 Billion Fraud Alleged at Iceland Bank

MANHATTAN (CN) - A "cabal of businessmen led by a convicted white collar criminal" drained more than $2 billion from a now-bankrupt Icelandic bank "to fill their pockets and prop up their own failing companies," the bank, Glitnir Banki, claims in New York County Court.

Steinunn Gudbjartsdottir, an attorney appointed by Icelandic District Court to oversee Glitnir's insolvency proceeding, filed the 79-page complaint against its auditors at PricewaterhouseCoopers and Glitnir officers who also held shares in "a blizzard of controlled companies" that allegedly benefited from the "stock parking scheme."

Glitnir claims the cabal was led by Jon Asgeir Johannesson, the "convicted white collar criminal," and that the seven individual defendants siphoned money out of Glitnir through "heavy and improper lending to entities they controlled."

Glitnir claims Johannesson - the "ringleader" who has a criminal record for corporate misconduct - stacked the bank's board of directors with "willing accomplices" in "a sweeping conspiracy to wrest control of Iceland's Glitnir banki."

All of the loans and transactions defaulted, leaving Glitnir heavily exposed to the "global credit crunch, which struck Iceland's markets during the summer of 2007," according to the complaint.

Glitnir says bank officers should have raised lending standards and been aware of its liabilities. Instead, Johannesson directed them to issue massive loans to companies he controlled "in an effort to stave off their eventual collapse and enhance the value of their publicly traded stock," according to the complaint.

"The Johannesson transactions made no economic sense for Glitnir or its creditors and placed the bank in extreme financial peril," according to the complaint.

Glitnir says the defendants sold U.S. investors $1 billion in medium-term notes to finance their scheme, and concealed the risk to which these transactions exposed the bank.

PricewaterhouseCoopers was complicit, signing off on statements that "grossly misrepresented Glitnir's related party exposure," according to the complaint.

Glitnir collapsed in 2008 with outstanding loans of more than $2 billion.

Creditors have filed more than 8,600 claims for $26 billion, according to the complaint.

Glitnir sued Johannesson and his wife, Ingibjorg Stefania Palmadottir; Thorsteinn Jonsson, who was chairman of the bank's board of directors; board member Jon Sigurdsson; CEO Larus Welding; board member Hannes Smarason; and Palmi Haraldsson, a director at a company that received loans.

The bank's local counsel is led by Michael Miller with Steptoe & Johnson.

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