When Baugur began buying up the British high street in 2004 the Icelandic outfit, led by its handsome executive chairman Jón Ásgeir Jóhannesson, was hailed as a new breed of Viking raider.

The Icelander with the shoulder-length blond hair and black designer clothes behaved more like a rock star than a sober businessman, throwing champagne-fuelled parties and seducing business associates with trips by private jet to Reykjavík to sample a thriving 24-hour party scene as the small island nation reinvented itself as a banking hothouse.

On the London circuit Jóhannesson, a paper billionaire at one time, was feted as the new kingmaker of British retail, in league with tycoons such as Sir Philip Green as he poured hundreds of millions of pounds into an acquisition spree that swallowed up retailers from swanky jeweller Mappin & Webb to House of Fraser and no-frills food chain Iceland. At the height of its powers, the Baugur empire had a turnover of £5bn.

But six years on the party is over and the mother of all hangovers has set in. Last week Jóhannesson, along with a number of former directors of collapsed Icelandic bank Glitnir, were hit with a $2bn (£1.3bn) US lawsuit that accuses them of a "sweeping conspiracy" to seize control of the bank and, latterly, drain cash out of it – actions that contributed to its eventual collapse.

Steinunn Gubjartsdóttir, who heads Glitnir's winding-up committee and is behind the US legal action, gives a bald assessment of what the team of forensic accountants from Kroll, who have spent the last year combing through its books, found: "There is evidence supporting the allegation that Glitnir Bank was robbed from the inside."

The 80-page filing lodged at New York's supreme court last week reads like the plot of a movie. It even comes with a compelling title – "Project Tornado" – which, it is claimed, was the shorthand used by the men, who include Thorsteinn Jonsson and Lárus Welding, Glitnir's former chairman and chief executive, to describe their plan to gain control of the bank.

The lawsuit paints a picture of a bank that became a personal fiefdom. The documents allege that Jóhannesson, whose father started one of Iceland's biggest retail chains, discount supermarket Bónus, was the "ringleader" of a "cabal of businessmen" who worked together to "wrest control of Glitnir and fraudulently drain over $2bn out of the bank to fill their pockets and prop up their own failing companies".

And in another damning development for the reputation of auditors, the suit also accuses PricewaterhouseCoopers, the world's largest accountancy firm, of malpractice and negligence.

Jóhannesson's glamorous wife Ingibjörg Pálmadóttir is also one of the defendants. The couple sought to add to their trophies – which include two apartments in New York worth an estimated $25m and a 144ft yacht named Viking – by opening a boutique hotel in Reykjavík. The $30.8m borrowed to open 101 Hotel has not been repaid.

The sensational lawsuit adds to mounting pressure on the disgraced elite who controlled Iceland's three main banks – Glitnir, Kaupthing and Landsbanki – and led the island's transformation from fishing economy to financial superpower in the debt-fuelled spending boom that preceded the credit crunch.

The uncomfortable verdict that has emerged from Iceland's official post-mortem into the crisis – which forced the fiercely independent nation to turn to the International Monetary Fund for help – was that its financial system was shot through with corruption. The truth commission report, published last month, also claimed Iceland's three biggest banks were in the thrall of their major shareholders.

And, after more than a year of piecing together the evidence, the reckoning has now begun for the country's disgraced former banking bosses. Last week prosecutors arrested and detained Kaupthing's former chief executive, Hreidar Mar Sigurdsson, on suspicion of offences including embezzlement and falsifying documents. In another dramatic development, Kaupthing's erstwhile chairman, Sigurdur Einarsson, has been put on Interpol's wanted list. Height: 1.8m, weight: 251lbs, hair: bald, says the description alongside the mugshot.

Lawyers acting for Glitnir allege the men created a web of companies that enabled Jóhannesson to circumvent the Icelandic financial regulator and ultimately speak for nearly 40% of Glitnir's shares and 33% of the voting rights. They say he "stacked" Glitnir's board with individuals connected to his other interests and "hand selected" an inexperienced candidate – Lárus Welding – to replace its chief executive.

Indeed, one email uncovered by investigators acknowledges the reality of two men's relationship, with Welding complaining that Jóhannesson treated him "more like a branch manager" than a chief executive.

How much money the Icelandic authorities can realistically hope to claw back is debatable, as estimates of Jóhannesson's personal wealth fall far short of the £1.3bn taken out in loans between April 2007 and February 2008 that is the focus of the legal claim. Baugur collapsed like a house of cards in the credit crunch with any investments that were worth anything seized by the administrators of the defunct Icelandic banks..

Lawyers acting for Glitnir have won a court order to freeze Jóhannesson's assets around the world. He has been liquidating assets and they estimate he made $85m (£57m) from the sale of offshore assets last year. There are also his New York apartments to consider; it is understood Jóhannesson was served with the court papers at his apartment in the exclusive Manhattan enclave of Gramercy Park.

Jóhannesson denies the allegations, arguing that they are politically motivated and a new iteration of a long-running vendetta against him. He was quoted last week as saying "it's just politics" and that he had "proof" to account for his actions.

Glitnir has chosen to sue in New York because central to its case is a $1bn US bond sale in September 2007 where the true state of the bank's finances were obfuscated – with the help, it is claimed, of PwC. "The defendants … used their control of the bank and funds raised in US financial markets to issue massive 'loans' to, and fund a series of equity transactions with, companies Jóhannesson controlled in an effort to stave off their eventual collapse and enhance the value of their publicly traded stock," the court filing alleges.

PwC says its opinion was based on "information and data the accountants had access to at that time".

The case is expected to take more than a year to come to trial.