Baugur fraud charges may include Arcadia deal

Jon Asgeir Johannesson, the Icelandic businessman trying to mount a takeover of Somerfield supermarkets, is preparing to fight a string of charges in his native country that appear to include allegations of embezzlement of £825,000 during an ill-fated takeover attempt of the Top Shop and Miss Selfridge group Arcadia four years ago.

The extent of the charges facing the chief executive of Icelandic company Baugur have not been published formally but are contained in a letter written by him to the national commissioner of the Icelandic police. Setting out his denial of the charges, the letter revealed he is also accused of accepting an allegedly improper loan from Baugur, violating tax laws and alleged "embezzlement and/or misappropriation" in connection with the takeover of 10-11, an Icelandic retailer, in 1999.

The police last week charged Mr Johannesson and five other people with a total of 40 charges after raiding Baugur offices in Reykjavik, the Luxembourg offices of Icelandic bank Kaupthing and a Baugur subsidiary in the Faroe Islands during a three-year investigation when company accounts, emails and other electronic data were seized.

The charges have left the planned bid for Somerfield on a knife-edge and talks between Baugur and fellow consortium members continued yesterday. The consortium may fall apart because members are concerned about the reputational risk if Baugur stays in. The outcome should be revealed to day, along with Somerfield's full-year results.

Mr Johannesson broke off the troubled takeover talks in London to return to Reykjavik yesterday to receive from the police boxes of files containing their evidence in the case. His lawyer Gestur Jonsson said after a meeting that his client "is very disappointed this is happening. He really believes it is unfair". Mr Jonsson expects to publish the full list of indictments against Mr Johannesson as soon as he has reviewed the evidence. The case is scheduled to be heard in the Icelandic courts in mid-August.

A flavour of the charges faced by the executive whose business empire has grown from one discount supermarket on the outskirts of Reykjavik to a string of household name retailers in Britain, can be found in the letter dated June 30 to Haraldur Johannessen, the national commissioner of the Icelandic police (NCIP). Mr Johannesson was charged the next day, July 1.

In the detailed letter, Mr Johannesson said: "It has been maintained by the NCIP that I was guilty of embezzlement in connection with a business transaction involving 3.1m Arcadia shares at the turn of the year 2000-2001".

These charges followed a search of the Luxembourg offices of Kaupthing bank in Luxembourg in April 2004.

Mr Johannesson asserted "it is preposterous to maintain that any pecuniary crime was committed". The charge appears to centre on how 212m Icelandic kronur (£1.8m) of gains on shares in Arcadia were booked in early 2001 in a series of transactions and loans between Baugur and Kaupthing and A-Holding, a holding company founded to bid for Arcadia.

The alleged embezzlement of 95m Icelandic kronur relates to a payment made when Baugur bought out its partners in the A-Holding vehicle.