Investigators untangle the Tchenguiz web

By Simon Watkins for The Mail on Sunday
Updated: 09:51 EDT, 13 March 2011

It was a rude awakening for Robert and Vincent Tchenguiz early on Wednesday morning. In dawn raids on the billionaire property moguls, police barged past their housemaids to arrest the two brothers in their bedrooms.

Arrested: Tycoon Robert Tchenguiz was picked up by police at dawn

'They were treated like petty criminals,' said one outraged friend of the men.

The brothers, who were questioned by police and released without charge late on Wednesday night, insist they will be cleared of all wrongdoing.

But the early alarm call is likely to be just the start of an unwelcome period in the spotlight for the pair as well as for five others questioned during an investigation by the Serious Fraud Office and Icelandic investigators into the collapse of Iceland's Kaupthing bank in 2008.

Three others arrested are understood to be Sigurdur Einarsson, the former chairman of Kaupthing, its former chief executive Armann Thorvaldsson, and former treasurer Gudni Adalsteinsson. All three were also released without charge.

Robert Tchenguiz's two right-hand men, Aaron Brown and Tim Smalley, were also questioned. Brown has declined to comment, but Smalley denied he was formally arrested.

American-born Brown began his career as a corporate lawyer and later worked at investment bank Merrill Lynch. He first teamed up with Robert Tchenguiz in 2004 to buy 200 pubs - long since sold.

Smalley was previously a banker at NatWest and later Abbey, where he advised the Tchenguiz brothers over their property deals.

As well as holding a range of directorships at smaller companies, the two men are also both directors of Robert Tchenguiz's main investment company, R20. Just two weeks before the SFO raids the trio set up a new business, R20 Advisory.

The Tchenguiz brothers became key clients of Kaupthing in the runup to the bank's collapse.

According to authorities in Reykjavik, Robert Tchenguiz 'and related parties' borrowed £1.8bn from the main Icelandic bank plus a further £180m from its Luxembourg subsidiary and about £80m from the bank's British subsidiary, Kaupthing Singer & Friedlander.

Robert Tchenguiz was also a shareholder in Kaupthing and a shareholder and director at Exista, an Icelandic investment group that owned 23%.

The fact that lending to Robert Tchenguiz by Kaupthing rose throughout 2008 - even as his business assets fell in value - has raised eyebrows.

Many of his assets were held in a British Virgin Islands company, Oscatello, that eventually was taken over by Kaupthing.

Despite the forced sale of many of his assets, including stakes in Sainsbury's, pubs group Mitchells & Butlers and computer games group SCi Entertainment, Oscatello was left owing Kaupthing £644m.

It is believed that the SFO is focusing on several issues. One is a deal in 2006 in which Robert Tchenguiz bought a 9.5% stake in Finnish insurance group Sampo in partnership with Kaupthing.

A year later he sold the stake to Exista and took payment in shares.

The deal gave him a five per cent stake in Exista and a place on its board. The SFO is understood to be looking at the links between Robert Tchenguiz, Kaupthing and Exista throughout these deals.

Another issue the SFO is understood to be investigating is share buying in Kaupthing in the months leading up to the bank's collapse.

Less than a month before the bank failed, Sheik Mohammed bin Khalifa Al-Thani, a member of the Qatari royal family, paid £155m for a 5% stake.

It later emerged that Al-Thani had been lent the money to buy the stake by Kaupthing through a series of complex links involving directors at the bank.

British property entrepreneur Moises Gertner also bought a 2.5% stake in Kaupthing in June 2008 worth about £70m. That too had been at least partly funded by loans from Kaupthing.

Gertner had been introduced to Kaupthing by Robert Tchenguiz and had paid a fee, thought to have been about £1m, for the introduction.

One source claimed Robert Tchenguiz received a similar payment from Kaupthing for introducing Gertner as a client, though a Tchenguiz spokesman denied this last week.

Neither Gertner nor Al-Thani is thought to be under investigation. But the investment by Al-Thani in particular was hailed by Kaupthing as evidence that leading investors had confidence in the bank.

But even these issues may yet be the tip of the iceberg as the range and complexity of Kaupthing's dealing with the Tchenguiz brothers and many other leading entrepreneurs is bewildering.

Sources suggest the inquiry may now go quiet as investigators pore over the details gleaned from their interviews and the seized data.

For the Tchenguiz brothers and others linked to Kaupthing it looks like being a long year.

Additional reporting by Lawrie Holmes and Sarah Bridge