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Switzerland’s newest stock-exchange enforcer saw first-hand how a country can be crippled by market fraud. As a fund manager, he lived through the collapse of Iceland’s financial sector. Then he was hired by the government to help investigate what led to it.

He found that, among other things, Iceland’s biggest banks had improperly inflated their share prices to counter the effects of the global debt crisis, for which some of their CEOs were sent to prison. The tactic turned out to be in vain as the banks ultimately had to be rescued by a government takeover.

Jared Bibler Source: SIX Swiss Exchange AG

Now, almost three months into his new job as head of enforcement for the blue-chip SIX Swiss Exchange, Jared Bibler says it’s too early to tell what kinds of misbehavior may need to be rooted out on the stock market. But recent data suggests to him that there are probably more market-manipulation cases to be made.

Of the hundreds of preliminary investigations opened by his office last year, 51 turned into full investigations over insider trading and six over market manipulation. That makes him wonder if some market manipulators are escaping notice, he said.

“I have an attitude about markets after what I saw in the Iceland case, which is, If you’re not finding something, you’re not looking in the right place,” Bibler, 43, said in an interview in the near-empty headquarters of the Swiss exchange as it prepared to move to a new location on the outskirts of Zurich.

Finma, Switzerland’s financial regulator, on June 23 announced it was banning three traders for up to eight years after it was tipped off by the exchange that they were placing large stock orders they never implemented and then profiting from underlying derivatives trading. Finma said on the same day it fined a company board member 1.4 million Swiss francs ($1.44 million) for insider trading and the Swiss attorney-general’s office has begun criminal proceedings in the case. Finma didn’t name the people or companies involved.

MIT Degrees

Bibler, a Boston native with mechanical engineering degrees from the Massachusetts Institute of Technology, came to oversee enforcement for the world’s 10th-largest stock exchange in a round-about way. It was his training as a software developer that led him to the financial sector, first working in Morgan Stanley’s back office and then at Nasdaq’s OMX Technology unit in Iceland.

By 2007, he was a fund manager at Landsvaki, an asset-management unit of Landsbanki Islands, one of Iceland’s biggest banks. Bibler, a Chartered Financial Analyst, soon grew disillusioned.

“I didn’t like how certain things were being done in asset management in terms of prudence and care with client money,” he said, declining to give specifics.

Iceland’s Upheaval

He gave his employer notice on Sept. 30, 2008. One week later, the government of Iceland passed emergency legislation allowing the Icelandic Financial Supervisory Authority to take control of Landsbanki and the country’s other two major lenders, Kaupthing Bank and Glitnir Bank, to guarantee their depositors’ assets.

People demonstrate in Reykjavik, on Jan 20, 2009. Source: AFP via Getty Images

That same year, a new government-controlled bank, Landsbankinn, took over the domestic assets of Landsbanki, which ceased banking operations. Runar Palmason, a spokesman for Landsbankinn, said that the successor bank had different management and that he couldn’t comment on what went on at Landsbanki.

Bibler watched as Iceland’s financial collapse turned the tiny nation of 300,000 people upside down, prompting a wave of protests, resignations of top government officials and years of economic contraction.

After what he calls a “tough” winter without a permanent job, Bibler was hired by the Icelandic securities regulator in April 2009 to join its investigation of Kaupthing. In 2011, he moved to the Office of the Special Prosecutor in Reykjavik to help investigate other cases of wrongdoing. Even today, Bibler said he’s mystified by the audacity of the Kaupthing fraud examined by his team of investigators.

Evading Auditors

For example, to shore up its sinking share prices as the debt crisis unfolded, Kaupthing used its proprietary trading desks to buy up its own shares, he said. The practice picked up in 2007 and 2008. On some days just one or two of Kaupthing’s own traders accounted for all purchases of the bank’s shares, he said.

To hide what they were doing from auditors, the trading desks would sell the shares to the bank’s brokerage desk at the end of each quarter to get them off their books. Then the brokerage desk would find customers for the shares, Bibler said. But in many cases, the customers were offshore shell companies financed with loans from the bank’s credit desk.

“It corrupted every department,” he said. The Icelandic regulator then investigated similar behavior at Glitnir and Landsbanki, he said.

The former chief executive officer of Landsbanki, Sigurjon Arnason, was given a sentence of 18 months in prison in 2014 for manipulating the bank’s share price, Special Prosecutor Olafur Hauksson said. He was also handed a separate 3-1/2-year sentence in 2015 for misuse of assets after giving out unsecured loans, Hauksson said. Arnason had authorized inappropriate loans worth more than $100 million to Panamanian shell companies, the indictment said.

Special Prosecutor

The banks weren’t fined because any sanctions would have been borne in part by the bank’s creditors, Hauksson said.

Arnason didn’t respond to a message sent to his personal email account. But after his 2014 sentencing, he told Reuters, “this sentence is a big surprise to me as I did nothing wrong.”

Hauksson, who was a small-town cop before he started tackling his country’s biggest financial scandal, knew Bibler from when they both worked at the finance regulator’s office and hired him after becoming the special prosecutor.

Bibler “suited our work quite well,” Hauksson said. “He had an eye for investigation and had an ability to analyze and see if there was mischief or not.”

Bibler handled several market-manipulation cases during his time in Iceland, including those against the banks whose executives were convicted, Hauksson said. His experience “might be valuable for his work in Switzerland,” Hauksson said.

Forensic Investigator

Looking for a break from the grind of investigations and the comparably low pay, Bibler joined Deloitte in Zurich as a forensic investigator in the fall of 2012. His appointment at the Swiss exchange was announced in April.

Switzerland is no Iceland. The combined market value of Zurich-listed companies is more than 100 times the size of the Reykjavik bourse. Bibler now has more resources at his disposal: a team of 13 for trading oversight and three more people to oversee audits and sanctions. He is also in frequent contact with investigators at Finma, which along with SIX’s regulatory board made the decision to hire him.

“I’ve seen really bad examples of what could go wrong,” Bibler said. “I bring that kind of attitude that ‘I want to find that again’ to prevent it from happening.”

( Updates with Finma sanctions for market abuse in sixth paragraph. )