New questions in Baugur fraud investigation

Fresh details have emerged of the fraud allegations facing the Icelandic firm Baugur, which last week agreed a deal to buy Hamleys, the world famous toy store group.

A court filing by the Icelandic police following a raid on Baugur's head office last year shows that an estranged business partner claims to have submitted a fake $589,890 credit invoice to make the company's finances look healthier. The invoice was submitted around the time that the firm was involved in talks to buy British retail group Arcadia.

In the same filing, the former business partner, Jon Sullenberger, alleges that he filed another 33 fake invoices to Baugur.

The invoices, he claims, were to disguise payments on a 62ft yacht in Miami owned by the father and son behind Baugur, Johannes Jonsson and Jon Asgeir Johannesson, using company money. Mr Sullenberger co-owned the boat with them.

The Icelandic police also raided the offices of a firm named SMS in the Faeroe Islands off the shore of Iceland in September last year, a month after raiding Baugur. SMS is 50%-owned by Baugur.

Baugur has stoutly defended itself against the allegations and Mr Johannesson and Mr Sullenberger, one-time friends, are ensnared in a web of lawsuits. Police investigations into Mr Sullenberger's accusations are continuing.

Baugur has dismissed Mr Sullenberger, who runs a food export business named Nordica in Miami, as a disgruntled former business partner whose work was "unsatisfactory". It is suing him for payment of the $589,890 invoice, which it says is genuine and covered damaged or missing merchandise, as well as $48,000 for goods it claims were not delivered.

Baugur has also filed suit to recover $135,000 from a letter of credit that Mr Sullenberger drew against when they stopped making payments for the boat last year.

There has also been a complaint made to the police by Mr Johannesson that Mr Sullenberger threatened his life.

Mr Johannesson, under pressure in Iceland, where Baugur dominates the retail market, recently took the company private. Two directors resigned in March over a "breach of trust" when minutes from a meeting were leaked to the press during a row in which the Icelandic prime minister alleged that Baugur had offered him a £2.5m bribe. Baugur has rebutted this claim.

Mr Johannesson and Mr Sullenberger have worked together since 1992 - Nordica supplied American canned goods to Baugur's supermarket chain in Iceland called Bonus Stores. But the relationship soured last year, eventually resulting in the complaint to the Icelandic police.

Disputed ownership

The details of Mr Sullenberger's allegations were aired in a courtroom in Miami at the end of last month. The case is disputing the ownership of the yacht, moored in Miami.

Gaumur, Mr Johannesson's private investment firm, is seeking $465,000 in the suit.

According to the court deposition, Mr Sullenberger said he faked invoices each month between 2000 and 2002 for either $8,000 or $12,000 each. Mr Sullenberger claims that he paid the monthly mortgage on the $1.1m boat, plus the upkeep and other expenses and was reimbursed by Baugur after sending the fake invoices. The invoices purported to be a "contract fee for retail services and commission finder's fees and consulting work".

As part of the deposition, a separate invoice from Nordica for more than $19,000 emerged, which Mr Sullenberger claimed had been to cover the cost of Miami escort girls hired for a party on the boat.

Hidden payments

Under questioning, Mr Sullenberger said: "I was instructed to make invoices the way that they could hide the fact that they were paying for their share in the boat. They usually gave me the text."

He claimed he had received the instructions from Tryggvy Jonsson, the former chief executive of Baugur, who resigned some months after police raided the firm's offices.

At one point, Mr Sullenberger testified, he sent the invoice from New Viking, a company set up to own the boat, and it was sent back with the request that the invoice be generated from Nordica, a company that Baugur was already doing business with.

He also testified that he witnessed Mr Johannesson telling a Bonus store manager who had taken a video camera with him onto the boat, to throw the film in the water because he didn't want any evidence connecting him to the vessel.

The boat, called Thee Viking, has been impounded by the Union Planters Bank, which provided the mortgage.

Mr Sullenberger is also suing Baugur for $1.2m, alleging that the company reneged on a deal to increase the volume of its orders and that they failed to pay two invoices, together worth $52,442.

Neither side would comment further last night.