Jon Asgeir Johannesson, chairman of Baugur, was arraigned yesterday in an Icelandic court on 40 charges, including embezzlement.

The sharply-dressed retailing magnate, flanked by all but one of his five co-defendants, denied the charges, which his defence said related to transactions within Iceland and abroad worth about IKr3 billion (€38 million).

Mr Johannesson claimed the three-year police investigation was politically motivated and was originally intended to break up Baugur. He said the investigation was masterminded by David Oddsson, Iceland's prime minister from 1991 to 2004.

Mr Oddsson has dismissed such talk as "nonsense".

The most serious charge Mr Johannesson faces is embezzlement, which could mean up to six years in jail. Some of the charges involved investments in the British company Arcadia.

The purchase of that stake kicked off Baugur's foray into UK retailing. The Icelandic group then bought Hamleys, the toy store, a string of high street chains and the Big Food Group. Many of the charges relate to shares and loans to Mr Johannesson made by Baugur between 1998 and 2002, when it was a public company.

Mr Johannesson said he did not expect Baugur's interest in acquisitions would be diminished by the court case. The court set the next hearing for October 20th.