Suspect Payments Appear to Shed Light on GAMMA Downturn

Gamma capital management

New information appears to shed light on the downturn of investment fund GAMMA, according to investigative news programme Kveikur. Personal payments to Pétur Hannesson, CEO of Upphaf (owned by GAMMA subsidiary GAMMA: Novus) may have been the impetus for unfavourable deals with contractors, leading to losses that weren’t discovered until after Pétur had left the company, and which were ultimately shouldered by insurance companies and pension funds. In just over one year, GAMMA: Novus’s worth went from ISK 5.2 billion ($37 million/€34.2 million) to just ISK 42 million ($300,000/€277,000).

VHE and Upphaf

The service and manufacturing company VHE – hired to complete the lion’s share of construction projects for the property development company Upphaf – paid a total ISK 58 million ($413,000/€382,000) to Upphaf CEO Pétur Hannesson between 2015 and 2019. The payments were made directly to Pétur and companies in his name. At the same time, Upphaf paid VHE and its subcontractors more than ISK 7 billion ($50 million/€46.1 million) for a project negotiated directly with VHE, without tender.

The Sale of GAMMA

As reported by Kveikur, GAMMA (GAM Management) was established by two former employees of the Kaupþing bank during the summer of 2008, months prior to the financial crisis (GAMMA managed assets for pension funds, insurance companies, financial institutions, companies, and individuals). GAMMA survived the financial crisis, and, in 2011, the company began turning its attention to investments in real estate (the company attracted controversy, being accused of driving up rent and real estate prices).

In 2018, following a decline in GAMMA’s operations – during which time many leading figures left the company – GAMMA’s owners began searching for a potential buyer. Kvika bank showed interested, eventually assuming control of GAMMA’s entire outstanding share capital in late 2018. The initial buying price was set for ISK 3.75 billion ($26.7 million/€24.7 million), but was eventually settled at ISK 2.9 billion ($20.6 million/€19.1 million) when the agreement was finalised.

After Kvika Bank acquired GAMMA, it reevaluated GAMMA: Novus’ assets, concluding that the fund’s sole asset – the aforementioned Upphaf – was worth significantly less than previously thought, or approximately ISK 42 million ($299,000/€277,000). As it was initially valued at ISK 5.2 billion ($37 million/€34.2 million) GAMMA: Novus’ value decreased in value by 99%.

As noted in a public statement on September 30, 2019:

“It has transpired that the position of two alternative investment funds managed by GAMMA, GAMMA: Novus and GAMMA: Anglia, is considerably worse than had previously been estimated. The rate of the funds has been lowered to reflect this.”

A single-sheet publication distributed to equity certificate holders on that same month (September 2019) stated that the “actual development” of the project had been significantly overrated. As Kvika explained to investors, the fund’s devaluation could partly be traced to overvalued real estate. Furthermore, almost two billion had been lost to exorbitant loans, and another two billion disappeared when it was discovered that the worth of GAMMA: Novus’ assets had been overestimated (“assertions regarding how much real estate had been constructed turned out to be false”).

Upon this discovery, Kvika replaced the former managers of the fund, notified the Financial Supervisory Authority, and hired the accounting firm Grant Thornton as an impartial agent to investigate. Among other things, Kvika probed whether payments had been made from Upphaf to companies owned by former CEO Pétur Hannesson.

Upphaf, a property development company owned by GAMMA: Novus

Grant Thornton’s investigation centred on the property development company Upphaf, whose sole ownership was in the hands of GAMMA: Novus (a subsidiary of GAMMA Capital Management). GAMMA: Novus’ equity amounted to ISK 4.8 billion ($34.2 million/€31.6 million) in mid-2018. During the spring of 2019, GAMMA: Novus issued bonds to finance construction projects and raised ISK 2.7 billion ($19.2 million/€17.8 million) at high interest rates (approximately 16%).

An extensive business relationship

As reported by Kveikur yesterday, after Pétur Hannesson had assumed the role of CEO, Upphaf entered into an extensive business relationship with VHE, a heavily leveraged contracting company, struggling with illiquidity, and with little experience in large-scale real estate projects. Contracts awarded to VHE, without competitive bids, were such that Upphaf bore sole responsibility for the projects (and VHE none).

Reporters with Kveikur maintain that they are in possession of documents showing payments amounting to a total of ISK 58 million ($413,000/€382,000) from Pétur Hannesson, and companies in his name, at the same time that he was awarding contracts of upwards of ISK 7 billion ($49.8 million/€46.1 million) to VHE.

Kveikur reporters contacted Pétur Hannesson and Unnar Steinn Hjaltason, VHE senior partner and chairman of the board. Both refused to comment. A few days later, a lawyer representing VHE sent a letter to Kveikur, in which the company admitted to having paid Pétur ISK 58 million ($413,000/€382,000) in consulting fees. While acknowledging that the payments seemed suspicious, VHE maintained that there was a valid explanation; the payments concerned to other real estate projects unrelated to Upphaf, and there was nothing suspect about the two parties’ business relationship.

Heavy losses

Investors in the GAMMA: Novus investment fund – Icelandic citizens, insurance companies, and pension funds – suffered heavy losses. The insurance company TM lost ISK 300 million ($2.1 million/€2 million), and insurance companies VÍS and Sjóvá ISK 155 million each ($1.1 million/€1 million). Three retirement funds, among them Birta, lost a total of ISK 800 million ($5.7 million/€5.3 million). In an interview with Kveikur, Ólafur Sigurðsson, CEO of Birta pension fund, stated that the payments to Pétur needed to be investigated. During the programme, it was revealed that the district prosecutor had been given copies of the files in question. On Monday, executives at Kvika Bank have also filed a suit to the District Prosecutor, and the payments will be investigated as embezzlement.

Following Kveikur’s coverage, GAMMA issued a public statement that reads that the current executives of GAMMA had been informed of the programme prior to the broadcast: “The relevant authorities are conducting an investigation into the matter, and GAMMA has informed the office of the District Prosecutor of the pertinent details. GAMMA will also, on behalf of GAMMA: Novus’ owners and its lenders, i.e. its many investors, investigate whether these parties are entitled to compensation.”

Journalism Award Given for Reportage on Samherji Scandal

Four journalists have been awarded the Union of Icelandic Journalists’ 2019 Bladamannaverðlaun for Best Investigative Reporting for their coverage of the Samherji Scandal, Kjarninn reports. One of last year’s biggest news stories in Iceland, the scandal ignited investigations both domestically and abroad when allegations were made that one of the country’s largest seafood companies, Samherji, had bribed government officials in Namibia in order to gain lucrative fishing rights and avoid taxation.

In Focus: Samherji Scandal

Aðal­­­steinn Kjart­ans­­son, Helgi Selj­an, and Stefán Drengs­­son, reporters for RÚV’s investigative news program Kveikur, and Ingi Freyr Vil­hjálms­­son, a journalist for Stundin, all received the award for their collaborative coverage of the scandal with Al Jazeera and Wikileaks. “Few stories generated more interest in the Icelandic media…” read the jury’s justification for the award. “The coverage has had a significant impact, both here in Iceland and abroad.”

See Also: Broken News

Arnar Páll Hauksson, a reporter for RÚV’s radio program Spegillinn, received the Journalist of the Year award for his coverage of wage issues. “With his deep knowledge and expertise built on years of experience, Arnar Páll has delivered high-quality coverage on wage issues in countless articles and in-depth reports at a time of great upheaval on the labour market. He has covered ideas and suggestions that have been made in wage negotiations in great detail and was frequently the first to report new developments.”

The award for Best Coverage of the Year went to Stundinn’s Alma Mjöll Ólafs­dótt­ir, Jóhann Páll Jóhanns­­son, Mar­grét Mart­eins­dótt­ir, and Stein­­dór Grétar Jóns­­son for their reporting on climate change issues, which was commended by the jury for providing comprehensive reportage on the foreseeable consequences of man-made global warming, its manifestations both in Iceland and abroad, and efforts made by both the government and individuals to counteract damage already done to the environment.

Interview of the Year was given to Erla Björg Gunn­­ar­s­dótt­ir, Nadine Guð­rún Yag­hi, and Jóhann K. Jóhanns­­son for an interview with a young woman who grew up in Seltjarnarnes with a mentally ill mother who struggled with drug addiction. As a child, the interviewee endured neglect and abuse at the hands of her mother, but Child Protection Services in her town neglected to intervene. “The interview received well-deserved attention and was followed by numerous reports on the status of vulnerable children, the operations of child welfare committees, and other related issues,” read the jury’s award justification.

Samherji Accused of Tax Evasion and Bribery in Namibia

Companies owned by the Icelandic fishing company Samherji are alleged to have paid high-ranking officials in Namibia – and individuals connected to them – more than ISK one billion since 2012 to ensure access to horse-mackerel fishing quotas in the country. This was reported by the investigative journalism programme Kveikur (produced in collaboration with Stundin and Al Jazeera Investigates) on RÚV yesterday. During the programme, former Samherji employee Jóhannes Stefánsson blew the whistle on the company’s activities. In addition to allegations of bribery, Samherji is also accused of transferring money to offshore tax havens.

One of Iceland’s Biggest Fishing Companies

Samherji, one of Iceland’s biggest fishing companies, is owned largely by cousins Kristján Vilhelmsson and Þorsteinn Már Baldvinsson. The company operates dozens of vessels around the world. Over the past few years, Samherji has made substantial profits in Africa, most notably from horse-mackerel fishing off the coast of Namibia.

The Icelandic government spent just under ISK two billion at present value in developmental aid for Namibia between 1990 and 2011, chiefly in support of the local fishing industry. Shortly after the government’s formal aid to Namibia came to an end, Samherjii endeavoured to secure access to fishing quotas in the country. This proved difficult, owing to restrictions on foreign investment in the Namibian fishing industry. The restrictions aimed to ensure that Namibians, and especially the impoverished, enjoyed the fruits of the fishing industry.

Bribes to High-Ranking Officials in Namibia

According to documents leaked to Wikileaks, and which Kveikur investigated, Samherji solicited the aid of three high-ranking officials in Namibia, all of whom are closely connected to Namibia’s Minister of Fisheries, Bernhard Esau (who is said to have accepted bribes as well): Tamson Hatuikulipi, Esau’s son in law; James Hatuikulipi, Tamson’s cousin and Chairman of the Board of the National Fishing Corporation of Namibia (Fishcor); and Sacky Shangala, the current Minister of Justice. Payments were also made to Mike Nghipunya, CEO of Fischor.

The documents suggest that Samherji paid these individuals, mostly through companies in Namibia and Dubai, approximately ISK 1.5 billion at present value. The payments were frequently made simultaneously with Samherji’s negotiation of quota agreements with the Namibian government, agreements that rarely seemed to have been in the government’s best interest.

“It looks like bribery,” Daniel Balint-Kurti, head investigator for the anti-organisation Global Witness, said. “I think that Samherji has some tough questions to answer.”

As reported by Kveikur, the leaked documents show how Samherji profited from a quota treaty that Namibia signed with its neighbour Angola in 2014. The treaty seems tailored to Samherji’s interests.

The Whistleblower

Jóhannes Stefánsson, the former general manager of Samherji’s operations in Namibia – and who mediated some of the aforementioned payments – blew the whistle on Samherji’s alleged offenses, as well as his own, to anti-corruption authorities in Namibia and other countries.

“The orders came from Þorsteinn Már and Aðalsteinn [Aðalsteinn Helgason, Jóhannes’ superior in Afirca]. Every obstacle was to be surmounted, to obtain the highest possible quota,” Jóhannes stated. Asked whether bribery was involved, he responded in the affirmative: “Yes, bribes were not an issue for Samherji.”

Samherji Responds

In a statement released by Samherji following the premiere of Kveikur, the company stated that it took these allegations seriously and that it had solicited the aid of the international law firm Wikborg Rein (based in Norway) to investigate the allegations. The statement also quotes Þorsteinn Már Baldvinsson, who questions Jóhannes Stefánsson’s role in the investigation:

“All of the operations of Samherji and connected companies were subject to extensive investigations for a period of many years without any punishable offense being discovered. All of our books, emails, and other documents were thoroughly reviewed, including those of the companies operating fishing vessels off the coasts of Africa from 2007. Just like before, we will not put up with the false and misleading accusations of a former employee, which are, once again, being served up by the same parties within the media and the Central Bank.”

Procar Admits to Fraud

Car rental dealership Procar has admitted to fraudulent practises following last night’s episode of Kveikur, The Icelandic National Broadcasting Service’s news television program. The show revealed that someone at the company tampered with driving gauges of used cars between 2013 and 2015 to lessen their perceived mileage before selling them off, RÚV reports.

In a press release, issued in wake of Kveikur’s program, the car rental company admits to this but maintain that the person responsible is no longer working for the company.

Kveikur originally requested an interview with Procar’s CEO, who turned down the request, saying that he had no reason to suspect foul play within his company. But Kveikur has managed to obtain information that suggests the CEO’s account was used to change mileage information in Procar’s computer system.

This information has been handed over to the police, who are now investigating.

Procar’s official statement declares that while this breach of confidence is “inexcusable”, the company has full intention to make it up to those who bought one of their used cars between 2013 and 2015. “An independent party will be recruited to decide fair compensation for those who bought cars with misleading mileages during those years.”

Procar also apologised to clients, the public and the staff of Procar, who worked for the company in good faith.