Parmalat fraud trial set to open

Parmalat’s founder and former chairman goes on trial today in Milan alongside other former directors, lawyers and accountants, nearly two years after the prolonged and massive fraud at the Italian dairy giant was discovered.

Parmalat Finanziaria SpA founder Calisto Tanzi and 15 others are accused of market rigging, providing false accounting information and misleading Italy’s stock market regulator in the £10bn (€14.7bn) scandal that was dubbed “Europe’s Enron".

Also facing trial are the Italian branch of Deloitte & Touche and the former Italian branch of Grant Thornton, both of which did auditing work for Parmalat.

Tanzi has not spoken out, but experts say his lawyers will likely try to blame the banks.

The trial will examine the web of financial trickery that Parmalat used to cover up its financial losses and raise cash, tactics that prosecutors say began shortly after the company went public in 1989.

That web was exposed in December 2003 when Parmalat acknowledged that a £2.8bn (€4.1bn) account that its Cayman Islands-based subsidiary Bonlat claimed to hold with Bank of America did not exist.

Shortly afterward Parmalat filed for bankruptcy protection and revealed that its net debt was more than £10bn (€14.7m), eight times higher than it had previously claimed. Tens of thousands of investors lost their savings.

Prosecutors originally asked that 27 people be put on trial in Milan. Eleven of them, including three of Parmalat’s former chief financial officers, were sentenced to up to 2 1/2 years in prison under plea bargains in June, while a fast track trial began for two accountants who worked at Grant Thornton in January.

The opening hearing in Milan is expected to be largely taken up by technical proceedings.

In a spin-off from the main trial, prosecutors have also asked for the indictment of five global banks and securities companies for securities law violations in connection with the Parmalat fraud.

Investigators allege the banks provided false information on Parmalat’s finances to investors encouraging them to buy Parmalat stocks and bonds in the run up to the crash.

Prosecutors in Parma, near the company’s headquarters, are seeking to put Tanzi and dozens of others on trial for more serious charges, including fraudulent bankruptcy and criminal association.

Parmalat is now run by a government-appointed administrator, Enrico Bondi, who has launched a series of lawsuits against banks in an attempt to share the blame for the crash and recoup some money for the company and the tens of thousands of investors who lost money. Bondi is also restructuring the company to focus on its core brands.