Robert Tchenguiz, 50, and his brother, Vincent, 54, both Iranian-born, Iraqi-Jews, educated in the United States and currently based in London, are being investigated by both countries, which launched a series of raids in London and Reykjavik, the capital of Iceland, March 9.
Officials from Britain’s Serious Fraud Office (SFO) raided the homes and offices of
both brothers and their business partners, arresting Robert, Vincent and seven others as part of 
a long-running investigation into the collapse of the Icelandic bank.
The SFO began its investigation at the end of 2009 and said it was looking at the “decision-making processes, which appear to have allowed substantial value to be extracted” from the bank just before its collapse.
When international lenders failed to refinance short-term borrowing during the global financial crisis of 2008—which ultimately led to a run on the bank’s online deposits—the bank was nationalized. It was left with debts worth more than 12 times Iceland’s gross domestic product (GDP). Reykjavik borrowed $4.6 billion from the International Monetary Fund (IMF); since then, an investigation opened into whether fraud or foul play had any role in the bank’s collapse.
Robert and Vincent were held in London for 14 hours after their arrest, but were later released without charge. The brothers are famous across Britain for their high-flying social life that is frequently featured in the media.
In addition to the Tchenguiz brothers, Robert’s top two lieutenants, Aaron Brown and Tim Smalley—who are in charge of carrying out many of the brothers’ investments through Robert’s R20 consultancy firm—are also being investigated. Several former Kaupthing Bank executives were also questioned by the SFO.
But Robert, who is the main target of the investigation, has stated that he actually lost the most from the fall of Kaupthing; Robert asserted he put up much of his assets and vast investment empire as collateral for loans totaling about £1.7 billion ($2.7 billion) from Kaupthing.
The Guardian of the UK reported that among the collateral lost by Robert when the bank finally called in his loans was: a 10% stake in J Sainsbury, the second largest supermarket chain in Britain; 27% of the pub, bar and restaurant group Mitchells & Butlers; a major interest in the Lara Croft games publisher SCi Entertainment; and smaller stakes in the brewers Greene King and Marston’s. Shares in privately owned Somerfield and pub chains Yates and Slug and Lettuce were also lost.
But investigators also found that, at the same time, Kaupthing routinely took minority stakes in Tchenguiz investments while organizations controlled by the brothers had direct and indirect interests in Kaupthing shares.
The Icelandic report identified Robert Tchenguiz as ‘the largest debtor’ in Kaupthing as well as a shareholder in Exista, an investment company that was the biggest shareholder in Kaupthing.
Robert had borrowed a staggering £1.7billion and the report noted: “The big increase in loan facilities to Tchenguiz from January 2007 until October 2008 is noteworthy, in light of the fact that in late 2007 many of Tchenguiz’s companies started going downhill.”
It also pointed out that the bank continued to lend him money to repay loans being demanded by other banks.
It said: “It seems that the boundaries between the interests of the banks and the interests of their biggest shareholders were often blurred and that the banks put more emphasis on backing up their owners than can be considered normal.”
The Iranian-born brothers are best known for their ties to real estate, but Robert spread out into other businesses and it is these deals that are currently under investigation. The brothers first set up their property company, Rotch, in 1982, but between 2002 and 2003 separated the company into R20, run by Robert, and Vincent’s Consensus Business Group.
Robert’s R20 began diversifying into buying stakes in retail and leisure businesses. His investment in several of these companies was through something called “contracts for difference” (CFDs), which allow investors to bet on changes in share prices without actually buying the stock. Kaupthing helped Robert convert some of these CFDs into shares, but after the banking crisis and later collapse, Robert was called to pay up on his CFDs—leaving him with a huge paper loss. The business tycoon’s stakes were seized after he lost a battle to keep them.
A family trust controlled by Robert sued Kaupthing’s administrators in 2010 claiming the bank went back on its promise not to call in the collateral on Mitchells & Butlers and Sainsbury’s CFDs. The case is currently being fought in court by Kaupthing’s administrators.
Vincent, on the other hand, had stayed largely with mainstream property, residential land buying and residential management businesses. But he too began diversifying, investing in clean technology companies and green energy.
The brothers, their teams and their attorneys are now waiting for the investigation process to be completed. It is expected that there will be a progress update in the fall. Both Robert and Vincent maintain their innocence.
