Stephen Foley: Icelandic saga will take time for fraud investigators to unravel

Outlook Forgive me, I must start by pointing out that three years after our horrific financial crisis caused by financial fraud, not a single financial executive has gone to jail, and that's wrong.

Those words are actually those of Charles Ferguson, maker of the credit crisis movie Inside Job, when he won best documentary at the Oscars last month. To him and to the furious public, let's just say: patience.

The document-snatching raids by the UK's Serious Fraud Office in London and Reykjavik and the arrest of nine people, including the flamboyant pre-crisis era dealdoers the Tchenguiz brothers, may or may not eventually lead to charges over the collapse of the Icelandic bank Kaupthing. Certainly, Robert and Vincent Tchenguiz, like the Kaupthing executives also held and then released without charge yesterday, say they did nothing illegal. (It is worth noting that, on the same day, it was revealed that the SFO will not be laying any charges against the Sports Direct owner, Mike Ashley, after an investigation, unrelated to the credit crisis, which took well over a year.)

But the SFO's move shows that there are still some rich seams to be tapped by investigators, and none is richer than the tale of little Iceland's improbable boom and shocking bust.

The tale, populated by the kind of larger-than-life adventurers you might find in one of Iceland's great sagas, follows a group of entrepreneurs who took control of the country's banks and lent themselves and their friends ever-increasing sums for investment abroad. The Icelandic "truth commission", set up to examine the causes of the country's crisis, also made allegations of market manipulation as desperate executives started to fear the whole enterprise was crumbling.

Whether or not fraud itself is found in the Kaupthing case, the more we learn, the more flabbergasting Icelanders' banking mistakes appear. The truth commission described numerous conflicts of interest, including that Robert Tchenguiz was the recipient of almost half the bank's lending, for his venturing in Sainsbury and Mitchells & Butlers shares in the UK. At the same time, he owned shares in the bank, sat on the board of its parent company, and even, as the crisis unfolded, pledged his shares in Kaupthing as collateral for more loans from the bank.

The 2,300-page report described how Kaupthing appeared to have become a lender of last resort for Robert Tchenguiz as his ventures began losing their value and other banks made margin calls. The commission said it was "noteworthy" that Kaupthing significantly increased its lending to him in the year leading up to its collapse to nigh on £2bn.

Greed on the way up. Fear on the way down. These are the motivators of fraud. We will have to see what the documents seized by the SFO reveal. Charges, if they come, are months away. And as prosecutors in the US found, when a jury acquitted two Bear Stearns hedge fund managers, making investment mistakes is not the same as fraud. Conflicts of interest do not amount to fraud.

Inside Job may be a travesty of the facts, and Charles Ferguson may be wrong – the credit crisis was not "caused" by financial fraud – but there undoubtedly was fraud along the way. From American subprime mortgage brokers lying to and about their borrowers, to negligence at least on the part of financial executives, there is still time for a reckoning. In Iceland, under the flickering of the Northern Lights, the reckoning may be bigger than most.