Icelandic Bank Executives Sentenced To Jail

Four former big names involved with the Icelandic failed bank Kaupthing were sentenced to prison by a Reykjavík court on Friday for their involvement in market abuses related to a stake taken in the bank by Qatari Sheikh Mohammed Bin Khalifa Bin Hamad al-Thani just weeks before its collapse in 2008.

According to Icenews, the four men sentenced are Hreiðar Már Sigurðsson, Kaupthing’s former CEO; Sigurður Einarsson, former chairman; Magnús Guðmundsson, former CEO of the bank’s branch in Luxembourg; Ólafur Ólafsson, Kaupthing’s second largest share-holder at the time.

The men received sentences ranging from five-and-a-half to three years in prison in what is by far the largest case brought against executives Iceland’s failed banks by the nation’s special prosecutor following the 2008 financial meltdown.
Iceland Freezes Home Foreclosures for Six Months

The fight over the Icelandic home mortgages left from the 2008 crisis has at least led to a government decision for a six-month moratorium on foreclosures. The new government was elected in April this year on a promise to write off most of the home loans that became unpayable for the majority of families on Iceland because of the banking crash 2008. The loans’ interest had been indexed to foreign currencies and jumped, when the krona was devalued. Also the mortgage securities were devalued and bought very cheaply by vulture funds, now demanding the full notional value, even though index loans have been challenged by the Supreme Court. A government statement reported that the “current household debt is equivalent to 108% of GDP.”

Originally the government promised to write off ISK300 billion ($2.4 billion) of the home loans, by writing down the value for the vulture funds (so-called “foreign creditors of Icelandic banks”). However, objections from the IMF, the OECD, and Standard & Poor’s have forced the government to let the nation pay. The same institutions also object to that solution. Iceland has “little fiscal space for additional household debt relief” according to the IMF, while the OECD stated that Iceland should limit its mortgage relief to low-income households.

In this bind, the Prime Minister Sigmundur David Gunnlaugsson, leader of the Progressive party, has announced a plan to write off ISK150 billion ($1.2 billion). The financing plan is (not settled fully yet) to take ISK80 billion of the state budget over four years, and take ISK70 billion from pension funds. In this way the government will be able write off ISK4 billion ($32,600) for each household mortgage, fulfilling the election promise despite criticism from international financial institutions. In order to avoid having many families lose their homes just before Christmas, despite election promises, the government also decided to suspend all foreclosures until next summer when the financing of the debt relief is expected to be in place.

Weeks before the bank collapsed, it announced that the Qatari sheikh had bought over 5% of its shares in a move which was seen as a confidence boost for Kaupthing. However, charges stated that the deal was a complex deceptive scheme, in which a loan from Kaupthing was deposited into shell companies in the British Virgin Islands before the money was sent to a company based in Cyprus called Choice, owned by one of the defendants and the sheikh. From there, the money was moved to another company, before finally making its way back to Iceland to pay for the shares.

Ólafur Hauksson, special prosecutor for the case, said the loans granted by the bank to pay for the shares served the only purpose of boosting the bank’s share.

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