Born in Sweden in 1880, Ivar Kruger graduated from the Royal Institute of Technology, then set up Kruger and Toll in 1908 to take advantage of advances in building technology he had come across in the US. He then turned his attention to his father’s match company, floating it, then merging it with other firms. Swedish Match would go on to become the largest match company in the world.
What was the scam?
Kruger initially raised funds through a flotation, but he supplemented this with bank loans and further stock sales in the US, paying investors dividends of up to 15%. To create the illusion of profitability, he would shuffle funds and assets around his business empire, in some cases using money he had borrowed through one company to repay the debts of another. Later on, Kruger turned to forgery, adding £28.7m in forged Italian bonds to the balance sheet in 1930.
What happened next?
The Wall Street Crash and Great Depression led many bankers to start questioning whether Swedish Match would survive, given its large debts and huge loan exposure to heavily indebted European countries. In an attempt to raise enough cash to pay out dividends, he attempted to sell his stake in Swedish phone company Ericsson to IT&T for $11m. However, IT&T’s auditors discovered that Ericsson’s balance sheet was padded with fake assets and the deal was cancelled. After the Swedish Central Bank refused to lend him more money, Kruger killed himself in March 1932.
Lessons for investors
Auditors brought in to investigate Swedish Match’s books after it was declared bankrupt in August 1932 estimate that at least $250m (and possibly as much as $400m) in assets that were supposedly on his empire’s balance sheet were either missing or didn’t exist. Although many of the companies in Kruger’s empire still operate today (including Swedish Match), shareholders were wiped out by the bankruptcy and American bondholders only got around 30% of the face value of their bonds. Kruger’s story proves that you should be suspicious of firms that are outliers, especially those (like Swedish Match) that claim to be booming even in the depths of a bitter depression.