There have been some strange things going on in Iceland’s financial markets, according to a recent story from the FT. In January, a group of international hedge fund managers organized by none other than Bear Stearns (before it’s calamitous fall) gathered at the 101 Hotel in Reykjavik for drinks and dinner at which they discussed the strange events. The dinner itself became a legend among Iceland’s financial community.

As an executive who works at one of Iceland’s big banks, told the story, “Upon entering the bar I was approached by one of the hedge fund managers. He informed me that all the people at this party—except for him, of course—were shorting Iceland.” The executive says that the fund manager told him that the potential for profits in Iceland was like “the second coming of Christ.”

“As dinner progressed—some people actually decided not to eat at all but just sit at the bar—and more drinks were downed, the conversation and questions started to get more hostile and short positions openly declared,” says the executive.

The goal of the hedge fund managers was to put pressure on Iceland’s credit default swap market.

The information learned at that alcohol-fueled dinner has now become part of a full scale investigation by Iceland’s Financial Supervisory Authority into an alleged speculative attack by hedge funds on Iceland’s currency, banking system and stock market. Jonas Jonsonn, director general of Iceland’s FSA, says the authorities are “searching whether some parties have systematically been distributing negative and false rumors about the Icelandic banks and financial system in order to profit from it.”

Other reports say that Iceland’s krona has fallen 21% against the euro this year on speculation Icelandic banks may not be able to sustain debt-financed growth, forcing a government bailout. .Kaupthing Bank hf and Glitnir Bank hf, Iceland’s No.1 one and No.3 banks, have Europe’s highest credit default swap spreads, indicating investors think they could go bankrupt.

Why are hedge funds going after Iceland? Because it’s cold? Or maybe because they think that they can get away with it. Only time will tell.