Ivar Kreuger

Swedish industrialist

• Born: March 2, 1880
• Birthplace: Kalmar, Sweden
• Died: March 12, 1932
• Place of death: Paris, France

Kreuger was one of the richest men in the world during the early twentieth century. His wealth, derived primarily from international match monopolies, was several hundred million dollars, equal to about $75 billion in 2010. However, he dissipated his personal fortune and that of his companies by perpetuating one of the largest financial frauds in history.

Sources of wealth: Manufacturing; sale of products

Bequeathal of wealth: Dissipated

Early Life

Ivar Kreuger (EE-vahr KREW-gehr) was born on March 2, 1880, in Kalmar, Sweden. After high school, he studied engineering in Stockholm. Attracted by the wealth of were chosen, Kreuger moved there in 1899 and worked for a construction firm. He helped build many city landmarks, including Macy’s department store, the Flatiron Building, and the Plaza Hotel. Tired of enriching others, Kreuger returned to Sweden and formed a construction company with Paul Toll in 1908.

First Ventures

Kreuger & Toll incorporated in 1911 and contracted to build Stockholm’s first skyscraper, a six-story department store. They committed to pay $1,200 per day if the work was not finished in four months and to receive $1,200 per day if completed early. Kreuger arranged a system of tarpaulins, searchlights, and heating facilities, letting work proceed around the clock. The project was completed in two months, generating a $70,000 bonus.

To expand his wealth, Kreuger became involved in his family’s safety match business and began acquiring competing firms in 1913. In 1917, he purchased his main competitor and developed a match monopoly in Sweden.

Mature Wealth

Competition from countries with cheap labor was a perennial problem, so Kreuger sought to obtain an international match monopoly. His agents posed as buyers, making low bids for companies. Kreuger then made a better offer, which was usually accepted since it looked good in comparison. When he owned several factories in one country, he would shut them down, building one efficient factory to destroy the remaining competition. Frequently, Kreuger paid royalties to governments in return for a match monopoly. Usually, he also lent the government money by purchasing its bonds, and he would pay for the bonds by borrowing from banks and floating stock. Kreuger formed two holding companies—Continental Investment Corporation and the International Match Corporation. In the 1920’s, the companies owned plants that produced two-thirds of the world’s matches and their stock was among the most widely held in the world.

Sadly, Kreuger’s empire rested on shaky foundations. His accountants knew little accounting, and Kreuger refused to let them audit his books. There were no independent directors to supervise his activities, so Kreuger was able to overstate sales and buy his own stock to support its price. He made a deal with the Polish finance ministry, and when the nation’s legislature rejected it, Kreuger pretended that the deal went through, giving investors an overblown picture of company earnings potential. After a deal with Italian leader Benito Mussolini fell through, Kreuger counterfeited forty-two Italian bonds, each with a face value of £500,000 and a forged signature of the Italian finance minister.

In 1929, when the stock market crashed, Kreuger’s stocks kept their price because they paid high dividends and he bought his own stock on margin. However, these tactics required new money, and banks and investors had little money available. To obtain funds, Kreuger used his government bonds as collateral for loans and then as collateral for additional loans.

In late February, 1932, Kreuger had debt payments due, and he had to make stock dividend payments on March 1. His employees pressed Kreuger to sell the phony Italian bonds for cash.

With his empire collapsing, on March 12, 1932, Kreuger committed suicide in his Paris apartment by shooting himself. Stock in Kreuger’s companies plummeted after he killed himself and was soon selling for just pennies.

Legacy

Shortly after his suicide, an audit uncovered the counterfeit Italian bonds and revealed that many assets on Kreuger’s books were worth less than their stated value. His companies were $1.2 billion in the red and they declared bankruptcy, which at the time was the largest bankruptcy in history. Kreuger himself was $265 million in debt.

It is still unclear where all the money went. Kreuger spent money lavishly on others, attempting to impress them. He had mistresses in most major European cities, and he wined and dined famous women, such as film star Greta Garbo. However, this accounts for just a fraction of the losses. Attempting to prevent the sort of fraud that Kreuger perpetuated, Congress made the public accounting profession responsible for auditing the financial reports of companies, and the New York Stock Exchange requires audits of all new listings and periodic audits of all public companies.

Bibliography

Churchill, Allen. The Incredible Ivar Kreuger. London: Weidenfeld, 1957.

Partnoy, Frank. The Match King: Ivar Kreuger, the Financial Genius Behind a Century of Wall Street Scandal. New York: PublicAffairs, 2009.

Shaplen, Robert. Kreuger: Genius and Swindler. New York: Knopf, 1960.