Ex-chief of collapsed Iceland bank taken into custody

A judge ordered Friday that the former chief executive of collapsed Icelandic bank Kaupthing be held for at least a week as part of a probe into the meltdown of Iceland’s banking sector, a prosecutor said.

Prosecutor Olafur Hauksson told public broadcaster RUV former Kaupthing boss Hreidar Mar Sigurdsson, along with Magnus Gudmunsson, who headed the bank’s division in Luxembourg, were taken into custody in accordance with a Reykjavik judge’s decision.

He said one of the men would be held for 12 days, and the other for seven.

Hauksson did not say who would be held for how long, but local media reported Sigurdsson was to be detained for 12 days and Gudmunsson for seven.

Upon the two men’s arrest late Thursday, Hauksson’s office said in a statement the investigation concerned allegations of “economic criminality” and the breach of security and markets laws.

It also asked for the two men to be held in custody for two weeks “to ensure interests of the investigation.”

The office said it was investigating “economic criminality” and “offence against laws about security trading, including market manipulation, and finally a breach of trading laws.”

Iceland suffered a massive blow in late 2008 when its three largest banks — Kaupthing, Landsbanki and Glitnir — collapsed and were taken over by the state during the global financial meltdown.

The former bank heads helped bring about the downfall by taking “inappropriate loans from the banks,” a parliamentary inquiry into the collapse found.

Sigurdsson and Gudmundsson are the first bank executives to be arrested.

Sigurdsson, born in 1970, headed Kaupthing from 2003 until its collapse and take-over by the state in 2008.

It is suspected he lent too much money to former Kaupthing shareholders and its executives.

Gudmundsson heads the Havilland bank, headquartered in Luxembourg and created in 2009 after the restructuration of Kaupthing Luxembourg.

Both suspects are residents of Luxembourg.