The principal proceedings in the Special Prosecutor’s Vafningur case began in Reykjavík District Court yesterday. Former CEO Lárus Welding and former managing director of the bank’s company division Guðmundur Hjaltason are accused of having approved an ISK 10 billion (USD 80 million, EUR 61 million at today’s exchange rate) loan in violation of the bank’s regulations on February 8, 2008.

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Lárus and Guðmundur are said to have granted the loan to Milestone instead of Vafningur in exchange for precarious collateral, even though the financial risk surpassed the legal limit, Fréttablaðið reports.

The purpose of the loan was to save the holding company Þáttur International from the default of a payment of a loan at Morgan Stanley, for which Milestone was responsible.

The possible bankruptcy of Milestone would have had serious consequences for Glitnir, as Milestone was a major shareholder and debtor at the bank.

Legal representatives of the defendants claimed yesterday that their clients had not considered the loan to be too high but more importantly, that they had not had anything to do with the loan being granted to Milestone instead of Vafningur.

The biggest mystery is who made the decision; no one has claimed responsibility.

In meetings the days prior to the loan being granted, an agreement with Vafningur was drafted. However, at some point on February 8, 2008, handwritten changes were made, clearing the loan for payment to Milestone instead.

Production of witnesses lasted throughout the day, concluding at 7 pm. Ten persons took the stand in addition to the two defendants, who had all worked at Glitnir at the time the loan was granted and were involved in the procedure, directly or indirectly, ruv.is reports.

“I have unclear memories of that day,” stated Halldór Halldórsson, former director of trade at Glitnir’s company division, according to mbl.is.

Halldór denied having made the decision and when asked who had greenlighted the loan to Milestone, he responded, “most likely it was my superior and the bank’s CEO,” referring to Guðmundur and Lárus.

However, they also claimed not having known about the change to the agreement, stating they hadn’t known about it until being questioned by the Special Prosecutor two years later, pointing out that the loan had gone to Vafningur already the following Monday.

“No one is trying to hide anything and it is ridiculous trying to make it look like that,” stated Lárus, according to Fréttablaðið.

His and Guðmundur’s attorneys repeatedly claimed that Halldór had been responsible for the change, also pointing out that it had been impossible without the approval of the bank’s financial director Alexander K. Guðmundsson.

A conversation between Alexander and Friðfinnur Ragnar Sigurðsson, another former employee of Glitnir, from February 8, 2008, where they allegedly discussed the planned loan, was played in the courtroom.

Friðfinnur called it “a shitty plot” and Alexander agreed, repeating his words. However, neither of them could or were willing to explain what exactly they had meant.

The prosecutor reasoned that with the loan, Lárus and Guðmundur had jeopardized the bank’s funds—Glitnir lost at least ISK 5 billion with the move.

However, the defendants claim that they had not made any wrong decisions, rejecting accusations of breach of trust and of abusing their position as the bank’s executives.

The principal proceedings in the Vafningur case will continue today.

Click here to read more about the Special Prosecutor’s investigation of the Vafningur affair.

ESA

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