Cash, Ash or Crash – Nobody Rides for Free

Iceland has been a sources of trouble.

In October of 2008 their banking system crashed after ill-advised over-expansion. Proportionally, Iceland’s financial meltdown made the US failure look quaint. The three biggest banks in Iceland, a country of only 310,000, made loans totaling over 850% of Iceland’s Gross Domestic Product.

In April, Iceland’s Eyjafjallajökull volcano erupted from its glacial hibernation. The result was the biggest shutdown in the history of aviation. (This included the flight for my planned vacation.)

Last week Iceland’s Glitnir Bank announced that it has commenced legal action in the Supreme Court of the State of New York against Jon Asgeir Johannesson, formerly its principal shareholder, Larus Welding, previously Glitnir’s Chief Executive, Thorsteinn Jonsson, its former Chairman, and other former directors, shareholders and third parties associated with Johannesson, for fraudulently and unlawfully draining more than $2 billion out of the Bank.

They are also suing the bank’s auditors PricewaterhouseCoopers for malpractice and negligence. The bank claims that PwC helped conceal the fraudulent transactions that lead to Glitnir’s collapse. “The Individual Defendants could not have succeeded in their conspiracy to loot Glitnir without the complicity of Glitnir’s outside auditors at PricewaterhouseCoopers hf.”

It’s curious that the action was filed in New York state court. I assume there will be a big battle over jurisdiction. After all, it’s an Icelandic bank, Icelandic defendants, and even claims under Icelandic statutory law.

The bank is claiming jurisdiction in New York because Glitnir sold $1 billion in medium term notes to US investors in September 2007. Plus Johannesson and his wife reside in New York (I don’t think that helps much with the other defendants.) The complaint also points out that many of the contracts involved in the fraud had New York choice of law provisions.

The question will be whether Icelend’s volcanic will prevent the defendants from traveling to New York.

The title of this post comes from Jim Peterson as his update of the 1970s hitchhiker bumper sticker.