Baugur boss and the escort girls

THE champagne corks should be popping this weekend at Baugur. The Icelandic retailer is set to clinch a £59m takeover of London toy shop Hamleys - its first capture in the UK. But the party mood could fall flat after lurid allegations of an altogether more adult nature made in a US court.

A former Baugur supplier based in Miami claims chief executive Jon Asgeir Johannesson and ex-president Tryggvi Jonsson spent almost $20,000 (£13,000) on 'escort services' as they partied on a yacht off the Florida coast and tried to pay for the girls on a company credit card.

Baugur is already the subject of a fraud investigation by Icelandic police over ownership of the yacht - prompted by allegations from the same former supplier.

The latest claims link the Icelandic executives to an escort company that advertises girls at $1,500 (£980) for seven hours and boasts that they fly as far as Africa to provide services to clients.

The allegations may be the final straw for Baugur's ill-fated foray into the US. The group's US business is focused on Bonus Stores, a chain of discount shops in the south, but Baugur admitted the venture has been disappointing. More than 200 stores are earmarked for sale and a spokesman admitted the group could pull out of the US.

The claim that Baugur's bosses procured women emerged in a legal battle between Johannesson and Jon Sullenberger, his one-time business partner and friend, who is based in Miami. In a statement to Dade County Court, Florida, last month, Sullenberger said Johannesson, Jonsson and others held a riotous party on the yacht Thee Viking, off Miami.

Sullenberger, born in Iceland but now a US citizen, told the court: 'I got a phone call from an escort service in Fort Lauderdale, claiming it had provided a service to Jon Asgeir and his associate and he [Johannesson] had tried to use a Baugur credit card. It did not go through and the owner threatened my life if I did not get hold of Jon Asgeir to have him pay $19,260.'

Sullenberger said he contacted Jonsson who told him to invoice Baugur for the sum. In the end, the invoice was paid by Johannesson. Sullenberger's lawyers have summonsed Jonsson and Johannesson to give sworn statements and provide paperwork 'reflecting Johannesson's arrangements to procure women provided by Miami Beach Escorts'.

Miami Beach Escorts' website promotes a 'High Roller Package' -- eight hours in 'a limo with an open bar and of course your drop-dead diamond centrefold only $2,395'. The site insists: 'No sexual activities are implied or condoned by Miami Beach Escorts or its entertainers.' The site carries adverts offering 'Viagra as low as $8 a dose'.

Miami Beach Escorts refused to comment.

Baugur has been in a bidding battle for Hamleys with bookseller Tim Waterstone. But last week he backed away and sold his stake to the Icelanders. Hamleys has recommended shareholders to accept Baugur's offer. The group is likely to clinch the takeover this week.

Baugur shot to prominence in Britain when it bought stakes in High Street store groups, including Big Food Group, Selfridges and the Top Shop-to-Burton group Arcadia. Last year, it teamed up with Bhs owner Philip Green to bid for Arcadia. But Baugur backed out of the deal when its offices in Iceland were raided by police investigating possible fraud - prompted by the allegations made by Sullenberger.

He claimed he helped Johannesson siphon money from Baugur to buy Thee Viking by providing fake invoices from his Miami company. Those allegations are being investigated by Icelandic police, but sources close to Baugur pointed out that no charges had been brought against any executives.

Baugur denied any link to the yacht and Johannesson, through his private company Gaumur, launched a legal case against Sullenberger, alleging Gaumur lent money to Sullenberger to buy the yacht.

It was while he was giving a statement as a defendant in that case that Sullenberger raised the stakes with allegations about Baugur bosses cavorting with escort girls. Baugur denies any wrongdoing and a spokesman dismissed the latest claims to emerge in the US.

'It is not our business to comment on scurrilous rumours put about by a disgruntled former business partner whom we are suing,' he said.