Words by

Magnús Sveinn Helgason

The Reykjavik District Court is now one week into what has been dubbed the “large Kaupthing market manipulation case.”

So far, the court heard the oral testimony of two traders, Pétur Kristinn Guðmarsson and Birnir Snær Björnsson, and their superior, head of proprietary trading, Einar Pálmi Sigmundsson. They are all charged with having carried out the market manipulation that was masterminded by the top brass at the bank.

None of the three claim they did anything wrong, although all three seem to have felt at one point or another some level of discomfort over the way in which Kaupthing was conducting business. In any case, all three have argued that they were acting in good faith and simply following orders from their superiors.

While we must wait for weeks before the verdict is handed down (and then months before the Supreme Court hears the case: because of course it will be appealed!), the traders’ testimony and the evidence offered by the prosecution has given us interesting glimpses into what life is like inside a bank that is fighting for its life.

Highly entertaining phone conversations!

Unquestionably the most fascinating evidence presented thus far are recorded landline phone conversations between the traders and their superiors, which were recorded according to bank protocol.

We learned, for example, that the traders and their superiors referred to Kaupthing as a “dead cat.” In January 2008, Ingólfur Helgason, the CEO of Kaupthing Iceland, called up Pétur Kristinn, the trader, to inquire about the markets: “What’s up with the dead cat today?” Ingólfur asked, apparently referring to Kauthing shares, asking whether the cat “will not be quick to get up if you kick him” which one can only assume was a question of whether the share price of Kaupthing would not bounce back if given a kick. In another conversation he asked Pétur, “Where do you plan to close the cat?” for the day.

Cats of course have nine lives and the Kaupthing brass clearly felt they were in charge such a feline. But, as we saw in Stephen King’s ‘Pet Semetary,’ it is not always wise to re-animate dead cats.

Yanking the market, yanking yourself?

The lingo of Icelandic trading has also been on display. Traders spoke of “digging in their heels” to stop prices from falling any further, they talked about “supporting the market” by placing “some strong bids in the last metres”, as the trading day was closing. Ingólfur instructed Pétur to remain “firm on the buy side,” warning him not to buy “endlessly,” but to create a “solid wall, and no buy bids.”

In another conversation he instructed Pétur to “gently support the bank,” and to avoid “yanking it,” which would “not be credible.”

When asked to explain to the court what this exchange meant, Pétur explained the goal was not to clean up every offer for Kaupthing stock in the market, simply to place strong buy bids. When pushed by the prosecution to clarify what was meant by “yanking,” a visibly irritated Pétur responded that perhaps Ingólfur was referring to himself: “Perhaps he wants to yank himself, what do I know?”

Switched to cell phones

The prosecution argues that the managers of Kaupthing probably realised at some point that the recordings might haunt them in the future, and switched to cellphones. In a short recorded conversation between the two traders, for instance, Birnir Snær instructed Pétur to call the CEO of Kaupthing Iceland immediately, stressing that he must use his mobile.

The prosecutor also pointed out that as the number of recorded conversations over landline went down, the intensity of contact between the traders and their managers seems to have gone up, as indicated by cell phone records, noting that Birnir Snær and Ingólfur Helgason, the CEO of Kaupthing Iceland, communicated via cell phone a total of 62 times from September 15 to 19 in 2008, including a number of text messages.

The prosecution also played a recording of a tapped 2010 phone conversation between Birnir Snær and his colleague at the bank, Birna Jenna Jónsdóttir, where these text messages were discussed. Birna asked Birnir whether he had showed the authorities the text messages. Birnir responded that he had not done so, and that he had deleted all of the messages, adding that they might have convicted him.

Despite the missing text messages, the prosecution believes it has enough to work with. While that is yet to be determined, it is safe to say that the recorded phone conversations do contain a lot of excellent material, whether it is for future historians or anthropologists studying the culture of financial institutions or today’s commentators and comedians.

Whether the top brass of Kaupthing were thinking about kicking dead cats or yanking the market this way or that, we at The Reykjavík Grapevine will continue to follow the trial: Stay tuned!