SFO launches investigation into collapse of Kaupthing

Fraud office will examine how investors were enticed into high-yield bank accounts

The Serious Fraud Office launched a formal investigation yesterday into the collapse of the Icelandic bank Kaupthing.

The SFO said it wanted to identify "whether misrepresentations or false representations were communicated by the bank in the push to attract UK investors" into the high-yield Kaupthing Edge deposit account.

Billions of pounds were held in 30,000 accounts by British councils, charities and individuals before the lender failed last year. The launch of a formal inquiry will see a step-change in resources allocated to the affair following four months of intelligence-gathering by the SFO. Its investigators have been working closely with their counterparts in Iceland since September, when the SFO director Richard Alderman sent a letter to Iceland's chief prosecutor offering to collaborate on the case. Reciprocal visits followed and regular contacts have been kept up.

A spokesman for the fraud office said: "This is a complex investigation which crosses numerous jurisdictions. We have been working closely with the Icelandic special prosecutor's office to ensure that comprehensive and robust investigations are conducted both in Iceland and the UK and to ensure there is no duplication of effort. We will continue to do so."

The investigation is expected to look at the role of the Icelandic bank's UK subsidiary, Kaupthing Singer & Freidlander, in the promotion of the accounts, as well as the "decision- making processes" which led to the withdrawal of millions of pounds from accounts in the days and weeks leading up to its collapse last year. During October, the Financial Services Authority was able to use new powers to seize online deposits, which were transferred to Dutch rival ING Direct.

The probe is also expected to cover Kaupthing's controversial loan business, which advanced substantial sums of money to a number of high-profile British businessmen while requiring little or no collateral to be put forward. Much of the information on the loan book was made public through the whistleblowers' website Wikileaks.

Its disclosures showed that two-thirds of the bank's corporate clients had links to London and that the bank had relationships with a number of well-known British entrepreneurs, notably the Sports Direct owner Mike Ashley and the property tycoons Vincent and Robert Tchenguiz. Other business people linked to the bank include the property magnates Nick and Christian Candy, Simon Halabi and the retailer Kevin Stanford.

Some or all of them could be called upon as witnesses as part of the SFO investigation into the bank's activities.

Former members of Kaupthing's board of directors are thought to have engaged the services of Burton Copeland, a law firm specialising in fraud cases, which has previously acted for the jockey Kieren Fallon and Michael Bright, the former chief executive of Independent Insurance.

No one from Burton Copeland was available for comment yesterday.

The collapse of Iceland's banking system crippled the economy of what had been one of Europe's wealthiest nations.