As the Italian government and the board of Parmalat moved to protect the Italian dairy giant from creditors pending its restructuring, Italian magistrates said Tuesday that they had sketched thebroad outlines of a tangled account-rigging scheme dating back more than a decade and involving front companies in fiscal paradises.
The investigators said many blank areas of the outline remained to be filled in. But they said their information allegedly revealed that Parmalat’s efforts to hide a mass of liabilities stretched back at least to Parmalat’s initial public offering of shares in 1990. Over the years, these hidden liabilities swelled to as much as 9 billion, or $11.2 billion.
Many questions remain unanswered, but the government in Rome moved quickly on Tuesday to pass a decree to make it easier for Parmalat to reorganize while under protection from its creditors.
The government said Parmalat’s new chairman and chief executive, Enrico Bondi, would be named commissioner to draw up a reorganization plan under government supervision. It said Italy would ask the European Union for permission to help Parmalat continue running its industrial operations and to help farmers in Italy who have been hit by the company’s cash shortage.
Bondi, who last week replaced Parmalat’s founder and chairman, Calisto Tanzi, was expected to convene the company’s board on Tuesday evening to approve a court filing for protection from creditors. That became unavoidable after Parmalat, with 35,000 employees in 126 factories worldwide, stunned investors Friday when it said that documents from Bank of America showing a 3.95 billion deposit, almost two-fifths the company’s total assets, were forged.
The government’s decree was a modification of Italy’s Prodi-Bis restructuring law, which gives companies time to sell assets to avoid bankruptcy.
Magistrates spent Tuesday questioning Fausto Tonna, one of roughly 20 current and former Parmalat executives and others who are under investigation for possible fraud. Tonna, who was chief financial officer for 16 years before he resigned in February, was a principal architect of Parmalat’s tangled financial structure. He was also a director of Bonlat Financing, an offshore company controlled by Parmalat that investigators say is at the center of the investigation.
We have a rough outline, said Francesco Greco, the chief investigating magistrate. Tonna, who entered the magistrates’ offices with his coat pulled over his head and a baseball cap pulled down over his face, refused to answer reporters’ questions.
Parmalat appears to have created finance companies in the Antilles at the end of the 1980’s essentially to dump liabilities it sought to hide from investors when Tanzi sold shares in the company to outside investors, according to people close to the investigation. Tanzi holds about 51 percent of Parmalat shares, the remainder is traded on the Milan stock exchange.
At the time, these people said, the Parmalat group, including the offshore finance companies, was audited by the accounting firm Grant Thornton. In the mid-1990’s, Italy introduced sweeping reform of its financial system, called the Draghi reforms for the then-deputy finance minister, Mario Draghi, that required Italian companies to rotate their auditors every nine years. So in 1999, Parmalat brought in Deloitte Touche to replace Grant Thornton.
Before doing so, however, Parmalat effectively closed down the Antilles-based companies, replacing them with Bonlat, which was registered in the Cayman Islands. Yet while Deloitte assumed responsibility for the Parmalat group, the auditing of Bonlat remained in the hands of Grant Thornton.
Parmalat, in information for investors, described Bonlat as a treasury center. But people close to the investigations called it a garbage can, where Parmalat parked all manner of liabilities accrued at its various subsidiaries around the world. On its balance sheet, Parmalat declared Bonlat to be in possession of assets that included the 3.95 billion supposedly held by Bank of America. In fact, Bonlat’s assets appear to have been non-existent, appearing only on paper, the people said.
Investigators said that despite intense questioning of company officials and the advisers, many questions remained unanswered. On Monday, Greco and his team met with Gian Paolo Zini, an Italian lawyer and an adviser to Tanzi. But they said it remained unclear when exactly Parmalat had allegedly devised the offshore scheme for masking liabilities and which liabilities it originally sought to hide. Nor is it clear who thought up the idea, whether Parmalat financial officers, advisers like Zini, or perhaps Tanzi himself.
Investigators have also been trying to find out whether Parmalat repurchased 2.9 billion of bonds that it claimed to have done in its reporting. People close to the investigation said that Tonna said it had not.
They said that Epicurum, a hedge fund based in the Cayman Islands from which Parmalat earlier said it expected a payment of $589.9 million on Dec. 4, appears to have assets of about $1.4 million.
Investigators said that some of the evidence allegedly points to the possibility that auditors at Grant Thornton knew of the scheme to hide liabilities at Bonlat. They point to the decision to maintain Grant Thornton as Bonlat’s auditor, even after the rotation to Deloitte.
A spokeswoman for Grant Thornton in London said the firm was cooperating with the investigation. The spokeswoman, Nan Williams, recalled that it was Grant Thornton that in part set the present events in motion last December when it wrote to Bank of America asking for confirmation that the Bonlat account existed. In March, Grant Thornton received from Parmalat documents on Bank of America letterhead confirming the accounts. But Bank of American subsequently declared the letters forgeries.
The bank denies any involvement and filed a criminal complaint Tuesday with the investigating magistrates. A spokeswoman for the bank said the complaint related to the possible forgery of bank documents.
