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The Bernie Madoff of the Jazz Age


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Ivar Kreuger, the so-called Match King, used a pyramid scheme to become the financier to European leaders. And then the market crashed

The Match King:

Ivar Kreuger, the Financial Genius

Behind a Century of Wall Street Scandals

By Frank Partnoy

Public Affairs; 288 pp; $26.95

It was the 1920s in America, the Jazz Age. Skepticism and fear had given way to postwar exhilaration. It was a time of stark ambition and little restraint, of excitable and credulous businessmen, bankers, and stock traders. It was the perfect place for Ivar Kreuger. He was a Swedish industrialist and brilliant mastermind; a charming, secretive man who tapped American investors to create a pyramid scheme that overshadowed Charles Ponzi's. By decade's end, Kreuger was one of the world's wealthiest and most powerful men.

Then it all came crashing down.

Frank Partnoy's biography, The Match King: Ivar Kreuger, the Financial Genius Behind a Century of Wall Street Scandals, is an absorbing tale and a poignant reminder that every boom has its scoundrels. Partnoy, a professor of law and finance at the University of San Diego, manages to explain Kreuger's complex dealings without diminishing the tension of his dubious rise and inevitable fall. What makes Kreuger an even more fascinating subject is the indelible mark he left. As the title suggests, he devised financial tools and tricks that are used to this day: off-balance-sheet financing and nonvoting B shares, to name just two. He was also inadvertently responsible for large pieces of the American regulatory system, including the Securities Exchange Act of 1934, which established the Securities & Exchange Commission and gave shareholders the right to sue for fraud.

Kreuger's assault on the U.S. began in 1923, when he was in his early 40s. By then, he had co-founded a construction company in Sweden (Kreuger & Toll) and, more important, built a match monopoly (Swedish Match). But his real ambitions were more grand. He wanted to be a global financier at a time when the leaders of struggling European countries were beholden to such men. His plan was to offer these leaders cheap loans in exchange for match monopolies. What Kreuger lacked was the money to lend them. For that, he came to America.

Like all great conjurers, Kreuger knew how to create an illusion. He understood how to entice the privileged by remaining aloof. He could appear confident at the worst of times. As Partnoy puts it: "He knew markets reflected emotions and perception. In finance, there was no such thing as reality." In short order, Kreuger founded a new company, International Match, and got Wall Street investment bank Lee, Higginson & Co. to sponsor a major bond offering. Kreuger promised huge returns, and investors took the bait. The money was loaned to Poland. He was on his way.

Kreuger lent hundreds of millions of dollars to France, Spain, Germany, and other smaller countries. Much of the money came from new investors drawn in by ever more complicated and lucrative offerings. But the profits from his match monopolies and the interest on the loans didn't cover these payouts. Kreuger constantly needed more cash.

By 1928 he had displaced Jack Morgan as the world's top financier. Kreuger was a confidant of President Herbert Hoover and on good terms with most of Europe's leaders. He owned mines, railways, and real estate, and had created a web of deceptions and obligations so arcane that only he saw how precarious his empire was.

Few raised any suspicions until the markets crashed in 1929. As bankers began asking questions, the Match King retreated to his Match Palace in Stockholm, where he would lock himself in his Silence Room and shift around what money he still had. In March 1932 a group of leading bankers who were exposed to his securities planned to confront him in Paris. Kreuger committed suicide the morning of the meeting.

Lee, Higginson went bankrupt. But investors didn't lose everything. After 13 years of digging, the trustee for the bankruptcy court recovered 32 cents on each dollar. And Swedish Match survived. As Partnoy writes of Kreuger: "He was a builder as well as a destroyer."

Ivar Kreuger, Bernard Madoff: Both of their schemes were shocking in scope and audacity. Both ran circles around gullible investors and inattentive regulators. And both left us dumbfounded when the truth came out. Partnoy gives us a rich account of the Roaring Twenties' most astounding confidence man. Now bring on the Madoff books.

Berfield is an associate editor at BusinessWeek .

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