Liquidity in the markets isn’t the only challenge Baugur Group might face in any attempt to take over Saks Inc. The investment company and two of its principals are under investigation by an Icelandic prosecutor looking into alleged tax evasion in the period 1998 to 2002.

This story first appeared in the March 19, 2008 issue of WWD. Subscribe Today.

A spokesman from the economic crime division of the state prosecutor’s office in Iceland confirmed this week that Helgi Magnús Gunnarsson is looking into possible tax evasion relating to Baugur, its executive chairman Jón Asgeir Johannesson and Oskar Magnússon, a former Baugur director. The case reportedly involves several million pounds in taxes.

At press time, Gunnarsson was traveling and could not be reached for comment. A Baugur spokesman in London declined to comment on the case.

This is not the first time Johannesson has come under the prosecutor’s spotlight. There have been past charges of fraud, but few have actually stuck.

Johannesson is currently appealing to the Icelandic Supreme Court regarding one outstanding tax-related charge against him, and that should be heard in May.

In yet another case, Iceland’s internal revenue service is in the process of reimbursing 75 million Icelandic krona, or $980,000, plus surcharges, to Baugur in overpaid taxes during 1998 to 2002. That case, involving stock option agreements to Baugur managers, was settled earlier this month.