Billionaire Tchenguiz brothers arrested by fraud squad

Two of London's wealthiest property tycoons were arrested today over the Icelandic banking scandal.

Brothers Robert and Vincent Tchenguiz - once listed among Britain's richest men - were held in dawn raids by the Serious Fraud Office.

More than 130 police and SFO investigators swooped on the Mayfair headquarters and London homes of the Iranian-born brothers at 5.30. Documents and computers were seized. The brothers were among seven men arrested across the capital. Two more were held in the Icelandic capital Reykjavik at the request of the SFO in a simultaneous operation.

The SFO inquiry centres on the collapse of the Icelandic Kaupthing bank and, in particular, how some individuals were able to withdraw funds in the days before it went under.

In a joint statement the brothers said: "We were arrested earlier this morning and are being questioned with regard to matters relating to our relationship with Kaupthing Bank. Both of us are co-operating fully with the investigation and are confident that, once concluded, we will be cleared of any wrongdoing." The brothers built a £4 billion property empire fuelled by the cheap credit of the boom years and four years ago they were listed as the 78th richest men in Britain.

At one stage Vincent Tchenguiz, 54, owned or managed 300,000 homes. But 50-year-old Robert's property and retail empire was shattered by the crash and the collapse of the Icelandic banking system.

He became closely associated with the Icelandic banking system and took advantage of the country's cheap credit. He used loans from Kaupthing to buy stakes in Sainsbury's, Somerfield and pub company Mitchells & Butlers as well as Lara Croft computer games group SCi Entertainment.

He once admitted losing £1 billion in the crash but the brothers appeared to keep their lifestyle intact.

Robert is married to socialite Heather Bird, who runs a chain of beauty clinics. The couple live in one of London's biggest private homes, a £30 million five-storey property next to the Royal Albert Hall. They also own a 147ft yacht moored in the south of France.

The SFO said in a statement: "Today the Serious Fraud Office, together with the City of London Police, Essex Police and with the assistance of Icelandic investigators, mounted extensive search and arrest operations in London and Reykjavik.

"The operations relate to the SFO's ongoing investigation into the circumstances surrounding the collapse of the Kaupthing Banking Group."

Kaupthing was one of three Icelandic banks that failed during the financial crisis in October 2008, losing Robert £1 billion in 24 hours when its UK arm failed. Regulators and enforcement officers in Iceland and Luxembourg have been investigating the collapse.

In February last year, Kaupthing's former offices in Luxembourg were raided by local anti-fraud authorities.

Last April, Iceland's official investigation into the collapse of its financial system revealed Robert Tchenguiz to be the Icelandic banks' biggest borrower. A report by a committee of Icelandic MPs noted a huge increase in loans to Mr Tchenguiz's companies in early 2007 at around the time he became a board member of the bank's largest shareholder, an investment firm called Exista.

Last year it was reported that four other top British financiers were also under investigation by the SFO for their dealings with the Icelandic bank.

Robert Tchenguiz told a newspaper last September: "It's not true that I am being investigated. I have never been contacted by the SFO or had any correspondence from them."

The SFO has been helping the Icelandic government in a wide-ranging inquiry into the country's banking activities since February 2009.

At one time it was reported that Sports Direct founder Mike Ashley was one of those whose relationship with Kaupthing was under examination.

Today Sports Direct issued a statement saying that "no individuals connected to Sports Direct International Plc are under investigation."

The SFO said officials had raided two business addresses and eight homes today. Those arrested were aged between 42 and 54. Investigators from the Icelandic Special Prosecutor's Office were also in the UK for the raid but did not take part in the searches.

The men arrested in Iceland are aged 42 and 43 and properties there were being searched.

Q&A

What is Kaupthing bank?
It is one of the main three Icelandic banks alongside Landsbanki and Glitnir which failed in October 2008. Thousands of UK consumers had put money into online savings accounts. The UK Treasury oversaw the transfer of 160,000 personal accounts with £2.5 billion of savings to Dutch bank ING Direct shortly after the collapse.

Who lost money?
Several local authorities and charities and individuals who had more than £50,000 in savings accounts. The UK bailed out those savers up to £50,000. Councils and charities have so far recovered less than 10 per cent of the more than £900 million they had invested.

Why was it so influential in this country?
Kaupthing made 31 per cent of its profit in the UK. It made business loans to many entrepreneurs including the Tchenguiz brothers particularly in property and retail.

Has anyone been brought to book?
Former chief executive of Kaupthing, Hreidar Mar Sigurdsson, was arrested last May but has not been brought to trial. Two Icelandic executives from Kaupthing's stockbroking and fund management divisions were sentenced to eight months each for share ramping in December 2009.

What went wrong?
Like many banks before the financial crisis Kaupthing relied on borrowing cheap money from wholesale markets and lending it at higher rates. When the US sub-prime mortgage crisis blew up banks the wholesale market dried up.

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