Former bank CEO arrested by Icelandic authorities

REYKJAVIK, Iceland - Icelandic authorities arrested the former chief executive of collapsed bank Kaupthing on Thursday — the first high profile banker to be detained in the wake of the tiny Nordic country's financial crisis.

The special prosecutor tasked with investigating the Icelandic banking crash of October 2008 said that Hreidar Mar Sigurdsson is suspected of falsifying documents and breaking laws on stock trading for personal gain.

Sigurdsson is being held in police custody until a bail hearing Friday at the Reykjavik District Court.

Prosecutor Olafur Thor Hauksson said he planned to ask that the former banker be kept in custody for two weeks to prevent the possibility of him tampering with evidence or interfering with the ongoing investigation.

Sigurdsson can appeal to the Supreme Court if the prosecutor's request is granted in the district court.

Hauksson was appointed by the Iceland's post-crisis government to investigate whether there was any criminal activity in the lead up to the banking crash that crippled Iceland's economy, sending its currency into a tailspin, frightening off foreign investors and forcing out the country's former leaders.

Britain's Serious Fraud Office is still carrying out its own investigation into suspected fraud at Kaupthing, with a focus on efforts by the bank to attract British investors to its "high yield" deposit account, Kaupthing Edge. About 30,000 British individuals, companies and organizations made an investment.

When it opened the investigation in December, the British agency said it would work with the Icelandic special prosecutor as it also looked closely at a series of decisions that appear to have allowed substantial value to be extracted from the bank in the weeks and days prior to its collapse.

The demise of Kaupthing, one of several Icelandic banks to collapse, sparked a political row between Reyjkavik and London because it failed after the British government invoked anti-terrorist legislation to freeze the U.K. assets of another collapsed Icelandic bank, Landsbanki.

Britain's Treasury said the move was necessary to ensure the money that British savers had placed in the bank would not be whisked back to Iceland.

But Iceland's prime minister at the time, Geir Haarde, blasted the move as an "unfriendly act" and blamed the decision for inspiring panic that led to the subsequent collapse of Kaupthing.

A cross-party committee of British lawmakers was later critical of London's handling of the situation, saying that the government's statements on the ability and willingness of Reykjavik to compensate non-Icelandic account holders was "ultimately unhelpful."

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AP Business Writer Jane Wardell reported from London.

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