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REYKJAVIK, October 20, 2010 (AFP) - An Icelandic prosecutor has opened an investigation of former executives at Landsbanki, one of Iceland's three banks that collapsed along with the country's financial system in late 2008, media reported Wednesday.

Iceland's Financial Supervisory Authority (FSA) on Tuesday sent the case to special prosecutor Olafur Thor Hauksson, who immediately decided to open an investigations, the Morgunbladid daily reported.

According to the paper, the FSA suspects former Landsbanki executives "manipulated the markets" for nearly five years leading up to the bank's dramatic fall.

If found guilty, the former bank chiefs could risk up to six years behind bars, according to Icelandic law.

The probe marks the latest move by authorities to hold former executives and shareholders of Iceland's failed banks accountable for sinking the country's once mighty financial institutions and pushing its economy to the brink of bankruptcy.

In April, a more than 2,000-page Truth Report laid much of the blame for Iceland's financial meltdown on former owners and executives at what were once the country's three largest banks, Kaupthing, Landsbanki and Glitnir, for among other things taking "inappropriate loans from the banks."

Iceland's great prosperity before the crisis was heavily based on its swelling banking sector, with the three largest banks seeing their assets go from equalling 100 percent of Iceland's gross domestic product (GDP) in 2004 to 923 percent at the end of 2007, according to IMF figures.

Last May, a similar probe to the one opened against Landsbanki was launched into dealing at Kaupthing, and several former executives were arrested.

"You could say that the investigation of Kaupthing will give ideas and suggestions to what sort of a case this is, and how it should be dealt with," Hauksson told Morgunbladid.

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