Iceland's Supreme Court has upheld convictions of market manipulation for four former executives of the failed Kaupthing bank.

Hreidar Mar Sigurdsson, Kaupthing's former chief executive, former chairman Sigurdur Einarsson, former CEO of Kaupthing Luxembourg Magnus Gudmundsson, and Olafur Olafsson, the bank's second largest shareholder at the time, were all sentenced on to between four and five and a half years.             

The verdict is the heaviest for financial fraud in Iceland's history.

Kaupthing collapsed under heavy debts after the 2008 financial crisis and the four former executives now live abroad. Though they sometimes returned to Iceland to collaborate with the court investigation, none were present today.           

Iceland's government appointed a special prosecutor to investigate its bankers after the world's financial systems were rocked by the discovery of huge debts and widespread poor corporate governance.

Special prosecutor Olafur Hauksson said: "It shows that these financial cases may be hard, but they can also produce results."

Iceland struggled initially to appoint a special prosecutor. Hauksson, 50, a policeman from a small fishing village, was encouraged to put in for the job after the initial advertisement drew no applications.             

Nor have all of his prosecutions been trouble-free: two former bank executives were acquitted in one case, while sentences imposed on others have been criticised for being too light.             

However, Icelandic lower courts have convicted the chief executives of all three of its largest banks for their responsibility in a crisis that prosecutors said highlighted the operations of a club of wealth financiers in a country of just 320,000 people.              

They also convicted former chief executives of two other major banks, Glitnir and Landsbanki, for charges ranging from fraud and market manipulation.