- Title: ITALY: Trial of Parmalat founder and other executives to open in Milan
- Date: 28th September 2005
- Summary: CLOSE OF (SOUNDBITE) (English) FRANCO PAVONCELLO , PROFESSOR OF POLITICAL SCIENCE AT THE UNIVERSITY, SAYING: "Really, this scandal, I would say, surpasses them all. It is a scandal of gigantic dimensions. They wiped out overnight one of the largest companies - publicly owned companies".
- Embargoed: 13th October 2005 13:00
- Keywords:
- Location: Italy
- Country: Italy
- Topics: Crime / Law Enforcement,Industry
- Reuters ID: LVAEXH1ZM6DNKRPA771GCZPKK7BS
- Story Text: The first hearing of the Parmalat trial will take place on Wednesday (September 28) in the northern Italian city of Milan. Parmalat founder Calisto Tanzi, 15 other executives and three financial institutions are on trial over their role in the scandal that plunged one of Italy's best-known brands into insolvency.
Following months of investigations and hearings, executives are on trial on charges including market-rigging, false auditing and of hindering the work of regulators. The Italian offices of Bank of America, auditors Deloitte & Touche and the former Italian affiliate of Grant Thornton were also charged with helping dairy group Parmalat mislead investors.
One of Italy's best-known global brands, the multinational dairy group traces its roots back to a food shop in the northern Italian city of Parma which Parmalat founder Calisto Tanzi inherited from his father.
Tanzi opened his first milk plant in 1961 and then used ultra heat technology to bring long-life milk to the market.
Parmalat expanded abroad in the 1970s and listed its shares in 1990. By the end of the decade it was active in 30 countries from Brazil to Australia. But it was also heavily burdened with debt and was nearly bought by U.S. food group Kraft.
Based on its now discredited accounts, Parmalat was Italy's eighth-biggest industrial group by revenues. Despite having an investment-grade credit rating and having its shares as a constituent of the Milan stock exchange's blue-chip index, concern grew over the group's failure to explain clearly why it did not use abundant cash shown on its balance sheet to pay down debt.
Growing worries about Parmalat's accounts and its offshore holding companies deepened in November 2003 when the group, under pressure from regulators, said it had nearly 500 million euros (605 million U.S. Dollars (USD)) invested in an unknown Cayman Islands fund.
The slide in Parmalat's shares and bond prices turned into a nose-dive when it failed to liquidate the fund and then repaid a 150 million-euro bond in December four days late - and only after help from creditor banks and Italy's government.
In December 2004, Tanzi resigned as chairman and chief executive and was replaced by turnaround expert Enrico Bondi. Parmalat's crisis exploded four days later when it said a four-billion-euro bank account held by a Cayman Islands unit did not in fact exist, triggering a criminal fraud investigation and forcing management to seek bankruptcy protection.
"Really, this scandal, I would say, surpasses them all. It is a scandal of gigantic dimensions. They wiped out overnight one of the largest companies - publically owned companies," Franco Pavoncello, a professor in political science in Rome's John Cabot university, said on Monday (September 26).
Since then Parmalat has said its debts totalled more than 14 billion euros, eight times the level previously claimed.
Two main groups of prosecutors have been investigating Parmalat's near collapse: one in Milan and the other in Parma.
The most serious alleged crime in the Milan case is market-riggin, or conspiring to issue false information about Parmalat's finances which is punishable by up to 10 years in jail.
Bank of America and Deloitte have denied wrongdoing. Grant Thornton severed ties with its Italian unit in the weeks after the 14-billion euro (USD 17 billion) accounting scandal broke.
"What the financial markets are asking what the financial international enviroment is asking is how come the banks didn't do any kind of due-dilligence, to really look into the situation of Parmalat until the very end to understand this scandal was so pervasive and the lack of liquidity was so pervasive itself", says Pavoncello.
In Parma, where Parmalat is based, magistrates are investigating possible fraud within the firm, including criminal association, false accounting and fraudulent bankruptcy. In addition, Parmalat administrator is asking for 10 billion dollars in damages from Parmalat's auditors and banks.
Now under bankruptcy administration, Parmalat has slimmed down its operations ahead of a planned relisting. The company's creditor's are expected to approve a move to swap its debt into equity, in a month-long poll. - Copyright Holder: REUTERS
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