A Milan judge on Wednesday indicted four international banks on criminal charges related to the 2003 failure of the Parmalat dairy empire in a case that could recoup millions of dollars for defrauded bondholders.
Judge Cesare Tacconi indicted Citigroup Inc., UBS AG, Deutsche Bank AG and Morgan Stanley for failing to have procedures in place that would have prevented alleged crimes that contributed to Europe’s largest corporate bankruptcy.
They will go on trial along with 13 bank employees who were charged with making false statements aimed at rigging the market for Parmalat bonds.
The indictment did not specify potential damages, which will determined during the trial set to begin Jan. 22 in Milan. If convicted, the banks could also potentially be barred from operating in Italy and could have any profits seized from the allegedly fraudulent transactions.
Citigroup, UBS and Morgan Stanley issued statements denying wrongdoing. Deutsche Bank did not immediately return calls seeking comment.
The case is one of several trying to assign responsibility for the collapse of the dairy company under 14 billion euros ($18 billion) of debt.
Lawyers representing Parmalat bondholders welcomed the decision. More than 40,000 bondholders have joined the Milan case as civil parties — a move that allows them to seek damages on top of the provision for restitution contained in the charge against the banks themselves.
“This is an important development, because it is the banks that can pay,” said a lawyer for about 32,000 bondholders, Carlo Federico Grosso.
Grosso said he could seek at least 280 million euros ($374 million) to 300 million euros ($400 million) for the bondholders that he represents.
Prosecutors have said they believe that individuals charged released false information to the market regarding the bonds because they were acting in concert with the former management of Parmalat. The charges cover five bond sales worth more than 1.6 billion euros as late as the summer of 2003 — only months before Parmalat’s financial problems were exposed.
It was discovered in late 2003 that a Parmalat subsidiary’s $5 billion account at Bank of America did not exist. Bank of America was not indicted in this case but has been named in another Milan case.
Morgan Stanley said Wednesday it would “vigorously contest this proceeding” on behalf of itself and the two employees charged.
“Morgan Stanley believes that those dealings, and the conduct of the firm and its employees, were entirely correct and that each of those transactions were initiated and carried out after proper due diligence and without any knowledge of the insolvency of Parmalat,” the company said in a statement.
Citigroup said in a separate statement the trial would prove it was innocent of all charges “and will confirm that Citigroup was an injured party in the worst bankruptcy in Italy’s postwar history.”
UBS pledged a “vigorous defense” and said it had no evidence that its employees behaved fraudulently or were aware “of the true state of Parmalat’s finances.”
In Parmalat’s hometown of Parma, a court has been hearing preliminary evidence for nearly a year in proceedings to decide charges against more than 60 former executives, financial advisers and bankers. That case is considered the most important because it alleges fraudulent bankruptcy and, in some cases, criminal association, and carries the highest penalties: up to 15 years in prison.
In another trial in Milan, Parmalat SpA founder Calisto Tanzi and 15 others, including external auditors, face charges of market rigging, providing false accounting information and misleading Italy’s stock market regulator, in a trial that opened in September 2005. They could be sentenced to up to five years in jail.