THE CON: A hero in his native Sweden, Ivar Kreuger raised millions in America for loans he made to European governments in exchange for monopolies on match production. Kreuger cornered the global market on matches - and ran a multi-national company based on forged documents, off-balance sheet accounting and assets claimed in banks that didn't even exist.
THE DAMAGE: In the wake of the "Kreuger crash," banks and investors across the globe lost $400 million, or about $6.2 billion today.
THE OUTCOME: Kreuger's suicide in 1932 shocked the world and revealed his pyramid scheme. To ensure fuller disclosure from companies selling stock, Congress passed the Securities Act of 1933.
Known as the “Match King,” Ivar Kreuger produced 75 percent of the world's matches in 1930. A national hero in his native Sweden, Kreuger was admired for his generosity, including the loans he made to a dozen struggling countries. But after his suicide in 1932, the world learned about the true basis of his company.
At 20, Kreuger left Sweden on a ship bound for New York City, where he worked as an mechanical engineer for eight years. When he returned home, he started the construction firm that built Sweden's first skyscraper. But it was in the family business where Kreuger found the fortune he sought. His father owned a small match factory, which he took over in 1917. Just a few years earlier, a Swedish professor had invented the safety match – a form of non-toxic phosphorous that could be manufactured on a box of matches.
Seeing an opportunity for growth in post-war Europe, he snapped up dozens of small match factories. He began approaching strapped countries with an attractive offer: he would make a sizable loan in exchange for a national monopoly on match production. The more matches he sold, the more money the government made in taxes. Whether because of desperation or Kreuger's skil ls of persuasion, a dozen countries had signed up for the deal by 1930. Germany secured the biggest loan of $125 million.
Kreuger, who cultivated an image as a person more concerned about creating global stability than profit, loaned out approximately $253 million. Meanwhile, he made as much as $150 million in America from investors lured by the prospect of tax-exempt profit. But the International Match Company, like any pyramid scheme, was doomed to a short run. Unable to pay the high dividends he promised, Kreuger turned to his capital. He also invested in new ventures in light and power, iron ore and railroads.
By the end of 1931, bank creditors started asking for explanations of his vague accounting practices. He held off the inevitable for a few months, insisting there must be an “error in translation.” Finally, with a $4 million unsecured loan from several banks due, Kreuger admitted he couldn't pay.
On March 12, 1932, Kreuger committed suicide in a hotel room in Paris. At first, his death was deemed a “suicide while despondent.” But, as the depth of the con was revealed, ill health was ruled out as a cause. With every new revelation, another domino fell. Sweden, in particular, was rocked by the so-called “Kreuger crash.” Beyond the shock of seeing its national hero exposed as a criminal, the nation sustained losses of about $60 million. To stave off a complete meltdown, the government acted fast to put the equivalent of $7 million into banks affected by the crash.
In the U.S., legislation was drafted to fill in the gaps of oversight that Kreuger exploited. America's Securities Act, which passed in 1933, required greater disclosure on the part of companies seeking to sell stock.
The chapter on the Match King himself wasn't totally closed. There were some who thought he faked his death, noting that his corpse was never seen in Paris or Sweden. Kreuger, who kept several rubber stamps on his desk made of the signatures of people with sway and influence, certainly had the wiles and will to pull off one final con.