The Match King | Frank Partnoy

Summary of: The Match King: Ivar Kreuger, The Financial Genius Behind a Century of Wall Street Scandals
By: Frank Partnoy

Introduction

Delve into the exhilarating world of Ivar Kreuger, the financial genius who conquered Wall Street with his charm, wit, and cunning business acumen, in ‘The Match King,’ written by Frank Partnoy. Famously successful in dominating Sweden’s matchstick industry, Kreuger’s goal was to raise funds in the U.S. and gain control of international safety match monopolies. Witness the rise and fall of his tangled webs of businesses, secret companies, and financial manipulations as he takes his empire to tremendous heights and tragic lows in the roaring 1920s. This summary will guide you through the extraordinary story of a man who played a crucial role in forming the foundation of Wall Street regulations and whose legacy still resonates with the financial world today.

Ivar Kreuger – The Match King

In the 1920s, Ivar Kreuger, a successful Swedish businessman, traveled to the US to raise money for his holding company, Kreuger & Toll. By showcasing his charm and business skills to wealthy investors, Kreuger managed to pay 25% dividends and become the leading producer of safety matches worldwide. His new plan was to lend money to governments in exchange for exclusive rights to sell matches in their countries. Despite his success, Kreuger’s business was built on fraud, and he eventually committed suicide in the wake of financial collapse and scandal.

The Rise and Fall of Ivar Kreuger

Ivar Kreuger, a Swedish entrepreneur, sought to create a worldwide match monopoly. His success at securing financing from Lee Higginson & Co., one of New York’s foremost investment banks, paved the way for his new venture. With charm and confidence, Kreuger won over the bankers, who believed he could lead them to surpass J.P. Morgan & Co. Kreuger and Donald Durant, head of the “syndicate department,” set out to raise capital and established the International Match Corporation. They issued convertible gold debentures, allowing investors the option to redeem their bonds for cash or gold. Kreuger sent his brother to Latin America and Europe to propose the monopolies to governments. Nonetheless, Kreuger faced a significant challenge: getting his funds out of America. He established the Continental Investment Corporation, a secret conduit company in Switzerland that enabled him to move funds from the US to Europe while evading taxes. However, Kreuger’s monopolies eventually failed, driving him to take out loans and issue fraudulent bonds. These actions led to his downfall and eventual suicide. Nonetheless, his legacy persists. Kreuger believed in the power of confidence, which propelled his rise and fall, from a small businessman to a leading industrialist and ultimately to a convicted fraudster.

Kreuger’s Elaborate Financial Scheme

In the book “Empire of Pain,” Patrick Radden Keefe sheds light on the elaborate financial scheme created by Ivar Kreuger. Kreuger used complex bookkeeping methods and an intricate network of subsidiaries, affiliates, and shell companies to hide his debts from U.S. auditors who were investigating his stateside businesses. His legitimate companies couldn’t generate enough profit to pay dividends promised to his investors, so he resorted to creating a Ponzi scheme, using new investor funds to pay current backers. Despite owning real successful businesses, Kreuger’s empire was built on a foundation of deceit. His estimated net worth was at least 25 million kronor, and he was considered one of Europe’s richest people. Ernst & Ernst, Kreuger’s handpicked American auditing firm, was instrumental in perpetuating his fraud by agreeing to his inventive bookkeeping methods. Kreuger went to great lengths to ensure that A.D. Berning, a junior Ernst & Ernst auditor, would acquiesce to his fraudulent activities by sponsoring extravagant trips for the young man and his wife. By 1924, International Match, Kreuger’s company, was showing signs of financial trouble, with only two financial documents and income for 1921 and 1922, despite being established in 1923. However, Lee Higg, the company’s partners, continued to trust Kreuger’s vision and profited immensely from his schemes.

The Deceit of Ivar Kreuger

Ivar Kreuger, a Swedish financier, built an empire in the match industry by using complex and questionable business practices. He was able to secure a monopoly deal with Poland’s government in exchange for a hefty loan. Kreuger invented “B shares” to raise money without giving up power to investors. He sold high-dividend preferred shares to honor his agreement with Poland and hired an unscrupulous auditor to hide his illicit activities in Garanta, a company he set up in Amsterdam. Kreuger’s money movements were untraceable and by 1926, International Match was one of the most widely held stocks in the U.S. In 1927, he arranged a loan for France using a complicated derivative, becoming the “superman of finance.” He lived a luxury life and hobnobbed with famous people until the stock market crashed in September 1929.

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