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Parmalat fraud proceedings open in Italy

Two and a half years after the $18 billion collapse of the Parmalat dairy company, officials in Parma launched Italy's main criminal proceedings Monday aimed at proving fraud in Europe's largest corporate failure.
/ Source: The Associated Press

A court opened the most important criminal proceedings in the 14 billion euros failure of the Parmalat dairy company on Monday, with 64 former executives, financial advisers and bankers facing possible fraud charges in Europe’s largest corporate failure.

The key figures in the company’s failure — Parmalat Finanziaria SPA founder and former CEO Calisto Tanzi and his longtime right-hand man and CFO Fausto Tonna — did not show up for the first day of the preliminary hearing, nor was their presence required.

Tonna’s lawyer said his client would seek a plea bargain during the pretrial hearing, citing his “exceptional” cooperation with investigators. Tonna pleaded out in a Milan trial focusing on securities fraud, and received a 2½-year sentence last June.

“We are now verifying the possible conditions, bearing in mind his contribution to the construction of this case,” lawyer Oreste Domimioni said outside of the closed-door hearing.

Domimioni said it was Tanzi, not Tonna, who bore the responsibility for decisions that led to the company’s bankruptcy.

“Fausto Tonna never participated in any activity that resulted in losses,” Domimioni said. “Tonna’s activities were related to organizing the papers in a way that these losses were not seen.”

The case in Parma is just one of several against former executives and others accused of contributing to the alleged fraud that concealed the company’s mounting debt. But it is the most important because it alleges fraudulent bankruptcy and in 44 cases criminal association, and carries the highest penalties: up to 15 years in prison.

On the first day of the preliminary hearing, which is scheduled to last through at least Wednesday, some 33,000 small investors who lost money in the 2003 crash joined the prosecution as civil complainants. They potentially will seek billions of dollars in damages.

Lawyers addressed the judge inside a convention center being used for the proceedings because of the large number of defendants and civil complainants, while a handful of mostly elderly investors who lost savings in the crash gathered outside.

An 80-year-old pensioner who would only give his first name, Orlindo, said he had invested 150 million old lira ($94,600) in Parmalat bonds in May 2003. He moved quickly to sell the investment when Italy’s securities watchdog Consob started questioning Parmalat about an offshore account in the Cayman Islands, but still wound up losing 85 million old lira ($52,000).

“We came out of curiosity,” Orlindo said, standing with other unlucky, elderly investors leaning on their bicycles. “People need to understand that we were tricked by our banks. I believed the investment adviser.”

While Tanzi remains a central figure in the scandal, even the small investor outside the hearing assigned him less responsibility than the banks for the failure.

Antonio Tanza, a lawyer who represents about 1,000 small investors, said the Parma trial is the most important because it focuses not just on the executives, but also on the Italian and foreign banks that sold the bad bonds to small private investors.

“At the end of this it would be enough for us that the responsibility of the banks is recognized,” said Tanza. He is seeking damages on behalf of his clients that are double their losses to account for suffering.

The banks have denied wrongdoing.

Tanzi, who in another Parmalat trial in Milan asked investors to forgive him, has blamed banks for leading the dairy company to its downfall, claiming they were the ones pushing the sales of the bonds.

“Tanzi obviously can’t have great expectations from this trial ... what he expects is a point-by-point reconstruction. He doesn’t hope to be acquitted,” said his lawyer, Gianpiero Biancolella, who on Monday entered files into the proceedings related to the banks’ involvement.

“What happened to Parmalat should not have happened,” Biancolella said, adding that the company was already having financial problems by the end of 1994 and should not have been selling bonds for tens of billions of dollars.

In other criminal proceedings, Milan prosecutors opened a trial in September against Tanzi and 15 others on charges of market rigging, providing false accounting information and misleading Italy’s stock market regulator. The maximum sentence is five years. Tonna was among 11 who reached pretrial plea agreements.

A preliminary hearing is scheduled June 30 in yet another Milan case, this one against banks accused of securities law violations for allegedly providing false information on Parmalat’s finances to investors.

Parma prosecutors also are investigating the banks’ role in the failure.

The Parmalat failure is also the subject of civil cases in the United States. In New York, the lead plaintiffs in a consolidated shareholder lawsuit have filed a motion to add the reorganized company as a defendant. According to court documents, the lead plaintiffs said they believe they can bring claims against the reorganized Parmalat because the new entity assumed all the former company’s prior assets and liabilities.