Reviewed by Dale L. Flesher University of Mississippi
Unlike most of the books published in the Garland “Accounting Thought and Practice Through the Years” series, this is not a reprint of an old accounting book. Instead, this volume — a biography — essentially outlines the dangers of a lack of uniformity in financial reporting. Ivar Kreuger, originally a Swedish match manufacturer and later an alleged international financial genius, was a living legend in the 1920s. He raised money in rich countries and lent vast sums to governments in need of capital following World War I. Kreuger’s companies benefited from this scheme in that he obtained legal match monopolies in exchange for the loans.
He raised so much capital that the securities of his companies were the most widely held in the world by the late 1920s. In fact, Kreuger was viewed in almost a saintlike manner for two reasons. First, the securities of his companies traditionally paid such high dividends that even small investors could quickly get rich by buying into new issues. Second, the money that was lent to warravaged governments was used for such humanitarian purposes that many a life and many a regime were saved.
Unfortunately, it was mostly a pyramid scheme. Despite some legitimate businesses and legitimate loans, Kreuger was primarily engaged in using money from new investors to pay dividends to previous investors. Kreuger advocated a financial reporting policy based on secrecy. He argued that investors need know nothing more than a company’s dividend policy. Anything more could be used to a company’s detriment by competitors. Consequently, there were no financial statements and no audits.
Although such a grand scheme was destined to be uncovered, the actual fall of Kreuger’s empire was hastened by the coming of the Great Depression. By 1932, it became exceedingly difficult to find new investors to put up the funds necessary to pay dividends on old securities. Seeing the end, Ivar Kreuger took his own life in March, 1932. The book gives much credit to the CPA firm of Ernst & Ernst in bringing on Kreuger’s suicide. Price Waterhouse performed the investigation for bankruptcy purposes, which was not a simple task given that there were over 400 subsidiary corporations and that claims filed exceed $1 billion (and that was when a billion dollars was a lot of money). No larger fraud has ever been perpetrated.
The author devoted several years of research to this project including the conducting of many interviews both in the U.S. and Europe. As to qualifications, the author is beyond reproach. Prior to getting involved in the Kreuger project, Shaplen had conducted a lengthy study and written many articles on Philip Musica and the McKesson and Robbins case. It was his fascination with accounting swindles that prompted the investigation into the greatest swindle of all time — that by Kreuger.
In summary, this is a fascinating book that can be enjoyed by both accountants and the general reader. Kreuger played a large role in the development of mandatory financial reporting as we know it today.
