Ivar Kreuger is still a bit of an enigma in history. Unlike other large scale financial scandals, Kreuger's multi-million dollar meltdown was overshadowed by the traumatic events of the crash of 1929 and the ensuing depression. At times it seemed that he was a solid, if ruthless, businessman, and at other times he appeared every inch a scam artist. Between those times, he either built a match monopoly that overreached or orchestrated one of the biggest pyramid schemes in history.
Tutorial: The Greatest Investors
Playing with Matches
Ivar Kreuger was born in Sweden in 1880. Kreuger's schooling was in civil engineering and he easily found employment while traveling to America and other international destinations, before becoming interested in the family match factories around 1911. The match businesses were struggling, so Kreuger absorbed them into his engineering firm to consolidate the family factories into one entity. Finding that consolidation worked well, Kreuger began to make offers for other match companies, as well as the raw materials needed to make matches.
Within a few years, Kreuger's pursuit of vertical integration and economies of scale left him at the head of all Sweden's match production. To his credit, Kreuger squeezed out waste and produced a better product at a cheaper price than anyone else. He intimidated hold-outs into selling to his conglomerate simply by selling his product at the same price in their area. Unable to compete with the higher quality matches, the reluctant factory owners were left with the choice to sell to Kreuger or go broke.
The Match King
Kreuger tapped into investor financing to expand his match empire around the world. Raising money through stocks and bonds, Kreuger was able to acquire additional monopolies for match production. He received these national franchises by bribing government officials and issuing sweetheart loans to governments. The more monopolies Kreuger acquired, the more attractive his company became to investors. As more financing came in, Kreuger began to live extravagantly. He bought art, houses, and even gave stocks to his many lovers as presents. Now Kreuger appeared every inch the ruthless tycoon that had "made it," but his company was drowning in debt.
With up to 75% of the match market in his hands, Kreuger kept expanding to distract investors from his balance sheet. He was paying high dividends, high interest and cooking the books to show massive profits - essentially pulling an Enron long before Enron. Kreuger discovered that he couldn't finance his debt with the profits from making matches and turned to raiding his acquired firms to buff up the balance sheet. He sold stocks off every piece of every company he could while also using inflated valuations of the same companies to secure more credit. (Read about Enron's spectacular collapse in Enron's Collapse: The Fall Of A Wall Street Darling.)
Caught in a trap where investor confidence was essential to maintaining his credit, Kreuger felt more and more strain to pay increasing dividends while paying off maturing debt. In this sense, his match empire became a variant of a Ponzi scheme where he needed to keep paying out money to get more money in - but Kreuger had an actual business beneath it all, overvalued and overleveraged as it was. Kreuger began speculating to stay afloat like almost every other financial scam artist when the writing on the wall becomes clear. Along with raiding his company from the inside, Kreuger went as far as forging millions in Italian bonds that his accountants added to the company's assets.
Oddly enough, Kreuger seemingly survived the 1929 crash. It was the ensuing credit crunch that followed the stock market plunge that caused his downfall. Banks and American investors, Kreuger's main sources of credit, pulled back and quit lending to him even though his image at this point was still very good. This left Kreuger high and dry, unable to roll over his debts into new loans or make the interest payments. (Read about The Great Depression and other market crashes in our Market Crashes Special Feature.)
Having exhausted his fortune on wine, women and art, while exhausting his company's fortune on acquisitions and dividends, Kreuger decided to go before his matchstick house went up in flames. He went to his mansion, dressed in his custom-made clothes and blew a hole in his chest. When all was tallied up, it turned out that Kreuger had also left a $250 million dollar hole where American investors thought they had match franchises (this would be over $3 billion in 2008 dollars).
Man or Monster?
Unlike Charles Ponzi or even the infamous Bernie Madoff, Kreuger had a working business. It wasn't, however, a business worthy of the investment capital Kreuger consumed in running it. The real answer is that Kreuger started out as a businessman and stepped across the line of aggressive growth to outright fraud. The same line that has tripped up men like Dennis Kozlowski, Kenneth Lay, Bernie Ebbers, John Rigas and many others. It's true that Kreuger and Madoff were able to stretch out the time during which they enjoyed their illicit gains, but the consequences are inevitable. Ivar Kreuger caused nightmares for people on Wall Street as well as Main Street, but Kreuger's life quickly became a waking nightmare from which he saw only one escape.
For additional reading, take a look at our article Crime vs. Time: Madoff Faces Off Against Fellow Fraudsters to look at a comparison of some of the greatest scam artists in history.