The Match Maker Who Nearly Burned Down Wall Street

26:21Yeah. So any profits made off of this are Irish profits. And they got a tax deal from the Ireland part of it. Yes. There was a move called the double Irish where somehow there were two different Irish companies that some companies would do. There was one, the double Irish with a Dutch sandwich where you put a Dutch company in the middle. Huda involved. Something. I don't know. You hear less about this now. It's not the active thing that it was. But it's a perennial favorite. So now Kruger sends the money he raised from the international match stocks to Continental, uses some of the money to pay those high dividends, pays some debts.

27:01And, you know, at this point, it's starting to feel like it's not a Ponzi scheme. He's selling matches. But it's Ponzi adjacent, right? When you're raising money and sticking it here and then using your newly raised money to pay off your debts, it gets a little worrisome. So he's going to make one more move, another pioneering move. This one today doesn't even seem shady. When he did it, it seemed shady. And that is this. He needs more money, wants to sell stock, not borrow it as debt. But he needs to keep control because weird stuff is happening on the books. He can't have like somebody buy up half of his company and be like, I want to see the books because the books aren't looking good at this point.

27:43It's a canvas. So he sells stock, which obviously means you own part of the company. But he says, yeah, you can buy the stock, but you're not going to get control of the company. You're only going to get one one thousandth of a vote per share. And I get one vote per share. This is called the dual class stock structure. This must have been amazing at the time. We accept it now with technology companies because we're like, oh, the genius founder needs to keep control of the company. And people are begging to join high tech companies. Like Facebook and Google to cite two very big modern companies that went public and said, you can buy stock, but you don't get to tell us what to do with the company.

28:19Seems normal now. But back then, like that was part of the covenant of buying a stock. Yeah. And reasonably so. You are buying ownership in the company. You own part of the company. He's like, yeah, you can own part of it, but you don't get to tell me what to do. And people love it. People think Ivar Kruger is a genius, like with tech founders today. People buy up these kind of second-class shares. And Kruger doesn't have to tell anybody what he's doing, you know. And there are not rules that require him to do so. Another thing we're not used to today, right? There are no rules that say you have to have, you know, an outside auditor.

28:54There are no rules that say you have to put out annual reports that say these things. You know, he'll put out reports, but they say almost nothing. Nobody knows what's going on. Because it's the 1920s. We haven't had a problem yet. We haven't had the big problem that is coming in this story. And for Kruger, so he's doing this for a couple years. And in 1925, his big plan starts working. First, he makes a deal with Poland. Okay. It's a step. Gets a 20-year match monopoly in exchange for a$6 million loan. And then in 1926, France. France has a financial crisis, basically. And instead of going to J.P.

29:36Morgan, they go to Ivar Kruger. This is a much bigger deal. He promises to lend France$70 million in exchange for a right to control the French match monopoly for 20 years. And the French love to smoke. I just want to pause for a moment to say entire countries are propped up by little wooden matches. It's elegant. There's that meme. What is the meme where there's like a building falling down or something of one little iron bar and a dude standing beneath it? You know what I mean? But in this case, instead of an iron bar, it's like a bunch of little matches. Instead of a building, it's France. And when Kruger's making these deals, he doesn't have$70 million, right?

30:20He's promising to get$70 million. But he's a hero of the American market. And so he can just keep going back to the market. And in one way or another, with his banker, Durant at Lee Higginson, he can raise more money and more money and more money. He wants more. He can get more. And there is this letter Durant writes to Kruger around this time that is that is explaining this. Here, give it to us. For the third time in about three years, you, Kruger, have gone to the public and asked them to double overnight the amount of their investment in your company. And each time this is met with success, we recall no other company with such a record.

30:54They're saying you can do anything you want. One really interesting thing about this moment is, you know, often people hate bankers, right? The banker comes in and lends money to the government. Everybody is resentful. At this moment, the French love Kruger. They perceive him as their savior. The French prime minister gives him the grand cross of the Legion of Honor. And one editorial in a French paper says, the French miracle has elevated Ivar Kruger to the position of Superman of finance. Oh, I always love this moment when we do business history. We can just revel in it a moment. He's Superman.

31:34He saved France. He's a match genius. He has all the money he wants or needs. And it will all come crashing down later in the show.

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35:17We're back from the ads. Ivar Kruger is the king of the world. He can do anything. He's buying up banks, mines, railroads, timber, paper. Buys a controlling stake in Ericsson, the Swedish phone company, which you may remember from the flip phone era. I do. He's buying Rolls Royces, buys a yacht. He buys a private island off of Stockholm to go to on his yacht. Buys a penthouse in Manhattan with a rooftop garden. Buys apartments in Paris and Berlin and Warsaw. He actually has greenhouses on the roof everywhere. And that Fortune article that I mentioned before talks about how he loved flowers. Read it.

36:01The Great Passion of Kruger's Life. This article said he loved lilies of the valley, rose buds, and a rose or an orchid in a narrow jar was a necessity on any desk where he might work. The desk where he worked at this time was at the headquarters of Kruger & Toll that he had built in this magnificent fashion in Stockholm. It became known as the Match Palace. I think in Swedish as the Matchstick Palace. Oh, I love it. But not made out of matches, made out of marble. Marble columns and, you know, bronze sculptures. I did imagine it made out of wood, actually, but no. No. He has a silent room where he is not to be bothered and no one is to speak with him.

36:42And in the boardroom, there is this giant mural of Prometheus, the figure from Greek mythology, on a winged horse flying down a rainbow to bring fire to the people in darkness below. Prometheus is perfect. Stole fire from the gods, brought it to humans. Got chained to a rock and sentenced to have a vulture eat his liver out every day, if I recall correctly. For eternity. For eternity. Yeah. Like, do you think they didn't know that part? They knew that part. Building the tallest building in the world, you know, we've talked about don't do that. But I feel like this one, it's right there in the story.

37:17Like, it's right there in the story. Maybe it'll work out for me better than it did for Prometheus. It's not going to work out for him better. So the Match Palace opens in 28. And you know what Ivar Kruger wants? He wants more. Because that's all he's ever going to want. Next year, October of 1929, Kruger gets more. He makes his biggest deal yet. But the German government agrees to a deal where Kruger will loan them$125 million, two tranches,$50 million in 1930, the rest in 1931. And Kruger, of course, doesn't have$125 million because that's not the way he does business. He'll go to the market and get it, which is what he's always done.

38:05And so on Wednesday, October 23rd, 1929, he, in fact, raises some of the money he's going to need for this deal. What comes after Wednesday, October 23rd, 1929? Well, Thursday always comes after Wednesday. But I feel like it was kind of a dark Thursday. Very. The darkest. A Thursday that could be more, no darker. October 24th, 1929. Black Thursday. Black Thursday. The stock market crash that, you know, started. Started it all. Shares of Kruger and Toll, the company sort of at the top of Kruger's empire, actually are not hit so hard. They're down like 12 percent. And Kruger cables Durant and says, well, it's bad timing.

38:50We just did this deal yesterday. But he says, I will cover half of your bank's exposure if your investment doesn't recover by the end of next year. and essentially is saying, look, America is panicking, but it's just superficial. You know, things are chugging along over here. In Europe, my companies are fine. We got this deal in Germany. People will always smoke. People will always smoke. Very good. So he still needs to come up with a bunch of this money in 1930 for the German deal. And amazingly, in April of 1930, the French repay their$75 million loan ahead of schedule, which gives Kruger the money he needs to make that$50 million loan to Germany.

39:34And if we just pause for a moment, yeah, think about the mechanics here. So France is paying back the money to Kruger. Yes. And France is getting the money from Germany, who has lost World War I and agreed to pay the money back to France. Largely, yes. Right, yeah. Now Germany needs money, and they're getting it from Kruger, who just got the money from France. Yes. You could draw like a circle, right? It is a circle. It goes Germany to France, France to Kruger, Kruger to Germany. It's a circle like every banker dreams of being in the middle of. And it works. It works. Kruger, at this time, is still making more deals.

40:11In 1930, he adds Bolivia, Bulgaria, Guatemala, Lithuania, Turkey, and Yugoslavia to his portfolio of match monopolies. And then comes 1931. Which at this point, Kruger has survived the main part of the financial crash. But of course, the Depression is coming. And that's when every company is vulnerable. Yeah. I mean, and we forget often looking back at the Depression, we sort of telescope it down and just think, oh, 1929 crash, Great Depression. But it really wasn't like that, right? Like 1929, there was a stock market crash. But the stock market crashed, you know, whatever, from time to time.

40:51And the key thing that happened was things got worse after that. And 1931 is when things are getting really bad. And Kruger needs another$75 million to lend to Germany for the second trench, the second, you know, chunk of that loan. But now he can't make the move he's always done. He can't just go to the capital markets and say, I need our Kruger. Give me some money and we'll all do great. He tries and he doesn't get enough money. And this is the moment when, as far as I can tell for the first time, Kruger crosses the line from shady finance to just outright fraud. He does it in this amazingly direct way.

41:34So he's sitting in his office at the Match Palace and he forges 28 ,668 ,500 pounds, British pounds, of Italian bond certificates. On paper? On paper. On paper. Is it drawing the squiggly lines that are always coming? Yes. I don't know. I know he's forging the signatures. I know he's forging the signatures. And so he has these pieces of paper, these stock certificates, and he uses them as collateral. He gets a loan from a Swedish bank secured by these bonds. Which are as good as money in that world. Yes, sovereign bonds. Sovereign bonds are a classic, solid collateral. I mean, it is amazing to think of the state of sort of communications at the time that you could actually do this, right?

42:21You went into the bank, you showed them a bunch of pieces of paper signed with some Italian name. And they're like, oh, fine, have the money. But, you know, the problem with Kruger is his whole universe is always needing more money. It's not just like, oh, now I'm fine. Yeah. He needs more money. So he decides he's going to sell his stake in Ericsson in the phone company. You know, it's a real asset, real business, making money. And he finds a buyer, an American company called IT &T, the other T &T, International Telephone and Telegraph. They do business in, I don't know, in Puerto Rico and in Spain.

42:57They're like, OK, great. Yeah, we'll expand to Sweden. And they send auditors to Sweden to look at Ericsson's books to, you know, study the balance sheet. That beautiful painting. They did not appreciate the beautiful painting, I imagine. No, it's a little too abstract for them. It's a little too modern. It's not sufficiently representational. They see the books and they cancel the deal. They're like, no, we're not buying whatever this is. And Durant, the banker, hears about this. And Kruger's like, no, no, it's just some problem with translation. It's fine. There's no big deal. Then Kruger, like, turns white and slumps down in his chair.

43:31So Durant calls in a doctor. He knows, you know, Kruger is not doing well and whatever and leaves. And Kruger at this point is clearly in bad shape. He's answering the phone when nobody calls. He's telling people to come in when nobody has knocked. Talking to the flowers. Maybe he is talking to the flowers. At one point, his housekeeper finds a slip of paper where he's written, I am too tired to continue. And Durant sees that the business is not going so well. There's this$4 million loan that Kruger doesn't repay. there's$50 million in German bonds that are supposed to be in the bank and they're not there.

44:11And Kruger is making excuses, you know, saying, yes, yes, whatever. It's just some error. We'll figure it out. And on the morning of March 12th, Kruger closes the blinds of his apartment, lays down on the bed, and shoots himself an inch below the heart. Ivar Kruger is dead. We'll deal with the aftermath after the break.

44:42Let's talk about modern home shopping. It's sort of become a fun side hobby, right? Scrolling listings at night, dreaming about kitchens you've never seen, or backyards you haven't even stepped foot in. All from the comfort of pretty much anywhere. Redfin knows a lot of people like you want to own, but are stuck in this browsing mode loop. That's where Redfin flips the script. With listings that update within minutes and tours you can book right from the Redfin app, you can see your dream home the moment it appears. Now, liking a listing is easy, but actually landing it, that's where Redfin comes in.

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47:23We're back. Yeah, it's Ivar Kruger is dead. It's a huge story around the world. There are rumors that he maybe isn't dead, that he's still alive. Newspaper stories talk about like detectives going in to see that he actually is dead. And interestingly, Kruger dies a hero. And, you know, he had loaned hundreds of millions of dollars to countries around Europe at a time when credit had dried up and they needed the money. The London Times called Kruger a man of ambition but no vanity. Least of all does personal suspicion light upon him in his last day. The Economist, I kind of feel like should have known better, didn't he?

48:06Read what The Economist said about him. He was a man of great constructive intelligence and wide vision who planned boldly, yet on a basis which seemed to be protected by carefully devised safeguards. It's not age well. They just don't know yet. And, you know, maybe part of this was because so many of those rich people that failed during this time had lived really, like, gossip column-worthy lives, had cheated on their wives, were out with showgirls, were just, like, throwing around their wealth and were not respected individuals. And when they lost their money, it seemed like maybe they were asking for it.

48:41Like the Jesse Livermore story when he had the, was it the Ringling Brothers circus for his kid's birthday party? Whereas in this case, like, because he was so quiet and people didn't know him, they just knew his deeds. Yes. And I do think the lending money to Europe was meaningful, right? It was finance actually doing something useful in the world. After a war. As opposed to just moving money around after a war. So his funeral comes a few days later. And, you know, Durant is there, the banker. And Durant, it's clear, still believes in Kruger, still believes in what they have done together. When I read this, I thought of the phrase motivated reasoning.

49:21We can use reason to convince ourselves to believe whatever it is in our interest to believe, right? It should have been clear to Durant that something shady was going on, that there was this super opaque set of all these different companies that only Kruger knew what was going on, that he kept needing to raise more money. But it was in his interest to believe otherwise. And we are all subject to this. We all think we are rational, but when we need to believe something to go on, we believe what we need to believe. So Kruger is dead. He's the only guy who understood how his empire worked. Somebody needs to untangle it, right?

49:58It is a going concern. There are all these companies that have loaned money, that are selling matches, that have match monopolies. And so the Swedish government brings in an accounting firm, Pricewaterhouse, the famous American accounting firm, to investigate. And surprise, they find that it's super shady. Here, read us some hits from their thing. Apparently, the balance sheets grossly misrepresent the true financial position of the companies, and the fraudulent entries were made under the personal direction of the late Mr. Kruger. They were lies. Of course, yeah. The auditors find all these subsidiaries spread around Europe, most of which have no, you know, practical business function.

50:36They're just ways for Kruger to move money around, to paint his canvas of lies. And to the public, this is all kind of abstract, right? Like it's coming out, but it's very accounting-y. And we know this from covering accounting scandals. It's super hard to explain. Like, well, wait, why does it matter whether this loan was on this book or that book? So there is a moment when it becomes less abstract. And that is when investigators seize the Match Palace, that headquarters in Stockholm, and they find those forged Italian mons. They're actual pieces of paper, less abstract than a sort of balance sheet.

51:16And amazingly, it makes it seem so long ago, Sweden's foreign minister, to ascertain the veracity of the bonds, takes these pieces of paper, these bond certificates, gets on an airplane and flies to Rome and meets with Mussolini. It's a Vittino Mussolini. Is this your signature? Yeah, it wasn't actually a signature. I was hoping it was. Yeah, are these real? And Mussolini's like, no, I've never seen those in my life. And in fact, Mussolini goes and gets some other documents that have the actual signatures. And on some of the documents, the signatures are actually misspelled. Sloppy work, Ivar.

51:52Come on. And this story is in papers around the world. There's pictures of the bond certificates. I think you can see it's just a lie. It's not creative financing. It is a lie. And people around Europe are arrested. The prime minister of Sweden actually has to resign because he had cashed a$10 ,000 check from Kruger and then lied and said he hadn't cashed it. The stock prices of Kruger's companies, you know, collapse, companies default on their debts. And Durant, the banker, is called to testify before the U.S. Senate. Here's what they wrote in time. Face white, lips twitching, nervous voice. Many times banker Durant failed to remember things, always insisting that he and his partners had faith in Kruger up to the time of his death.

52:34One of the things I want to point out about this is it's not just a generic hearing that the senators are doing to, you know, be morally superior and get in the papers and on the radio. It's 1933. Congress is about to write the securities laws that still today are the fundamental architecture of the way the stock market works in America. They're about to create the Security as an Exchange Commission, the SEC. They're about to require companies to issue audited financial statements to follow generally accepted accounting principles. Gap. Gap. Gap. Generally accepted accounting principles. Not universally accepted, but generally accepted.

53:17They're making the rules that companies still have to follow today. And they are making these rules in large part because of Ivar Kruger. The committee report for the Securities Act of 1933 has like 250 pages about Ivar Kruger. So maybe his biggest influence today arguably is not the two-class share structure, off-balance sheet financing, but the structure of securities law in America. And the matches. And the matches. Billions of matches. Kruger is one of the most famous villains of one of the greediest eras in American history. And before I did this story, I just thought he ran a Ponzi scheme.

54:00I just, that was all I knew about him, a guy who ran a Ponzi scheme. But that's not correct. Like, his companies were shady and he was a criminal. He was a crook. But his companies were real businesses and they continued on after his death. The trustees for international match recovered enough to pay shareholders 32 cents on the dollar, a huge loss. But, you know, it's the Depression. Kruger & Toll got its investors more than half of their money back by 1937. Again, it's the Depression. You know, they'd been getting those dividends before 32. They did okay. And, you know, I think the lesson in this story is the line between Ponzi and real business is subtler than we want to think.

54:44Yes, he was a fraud, but also he created these businesses. And in fact, that case is made most strongly by Swedish Match, his first big match play. After Kruger died, Swedish Match kept making matches. They eventually got into the tobacco business. They started making little nicotine pouches that you put in your mouth. You know, Zinn? Yes, yes. I've seen the ads, yeah. The pouches that rise and grind entrepreneurs love. Haven't tried it. That is Swedish Match. And partly on the strength of Zinn, in 2022, Philip Morris bought Swedish Match for$16 billion. Huh. The deal went through. The company's books were solid.

55:30I guess Kruger would have been proud. A very special thanks to my friend Lucas Cantor, composer, author, financier, who suggested that we do a story about The Match King. And I should say the other key source for today's show, besides the series of articles in Fortune, is a more recent book called The Match King by Frank Partnoy. Today's show was researched and largely written by our producer, Gabriel Hunter Chang. Bravo. The video is edited by Matt Nielsen. Yes, we're on YouTube. Watch us. Woo. We were edited by our showrunner, Ryan Dilley. The show is engineered by Sarah Bruguer. You can email us at businesshistory at pushkin.fm.

56:11And please do. My favorite, frankly, email we've gotten lately was from Emmanuel in Tanzania. Emmanuel, great to hear from you. Thank you for listening in Tanzania. And we were just talking about all of the rise and fall narratives that we've had on this show. If you know of a fall and a rise narrative in business history, let us know. We'd love to do that, too. Yes, we want a fall and rise. So business history at Pushkin.fm or I'm on Twitter at Jacob Goldstein. I'm on LinkedIn. That's me. I'm at Radio Smith. And my name is Robert Smith. My name is Jacob Goldstein. And Robert, I think I speak for both of us when I say we are extremely grateful to everyone for listening to this show.

56:51So thank you. Please tell a friend. And we'll be back next week. This episode is brought to you by Navy Federal Credit Union. May is their favorite because Military Appreciation Month is their time to celebrate those who go above and beyond. They know the military community protects our country, takes care of their families, and volunteers in their communities. That's why they've helped the military community for over 90 years. Learn more at NavyFederal.org slash celebrate. And happy Military Appreciation Month. Navy Federal Credit Union. Navy Federal is insured by NCUA. Do you ever feel like you're drinking from a firehouse?

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