The "..Eye-talian.." Enron saga expandes...........
SEC Charges Parmalat Agency Says Italian Firm Defrauded U.S. Investors
By Carrie Johnson
Washington Post Staff Writer
Tuesday, December 30, 2003; Page E01
The Securities and Exchange Commission yesterday sued Parmalat Finanziaria SpA, accusing the Italian milk and cookie maker of defrauding U.S. investors in what regulators called "one of the largest and most brazen corporate financial frauds in history."
Parmalat fraudulently offered $100 million worth of unsecured notes to U.S. investors this year at the same time it inflated its assets by at least $5 billion and understated its liabilities, the agency contended in court papers filed in Manhattan. Parmalat's American depository receipts trade in the over-the-counter market in the United States. The company, which makes long-lasting milk and Archway cookies, among other products, maintains an American headquarters in New Jersey and has other operations across the country.
Trouble at Parmalat was initially disclosed Dec. 19, when the company revealed that a U.S. bank had no record of a $4.9 billion account allegedly maintained by a Parmalat subsidiary based in the Cayman Islands. A source close to the company says the accounting irregularities have surpassed $8 billion and could grow.
The company filed for bankruptcy protection Dec. 24, and founder Calisto Tanzi was taken into custody over the weekend on suspicion of making false statements and committing fraud. Italian prosecutors yesterday argued that Tanzi knew about long-running accounting tricks at Parmalat and encouraged a judge to incarcerate the 65-year-old Tanzi in a Milan prison while they continue to interview witnesses, according to an Associated Press report. The judge said he would rule on the request today.
Tanzi, who has faced extensive questioning from Italian authorities in recent days, was not charged in the SEC civil complaint. But the court papers provide fresh details of conversations Tanzi, former chief financial officer Luciano Del Soldato and other executives had as late as Dec. 9 with representatives from an unnamed New York private equity firm to discuss a possible leveraged buyout of Parmalat.
During the meeting, Calisto Tanzi's son Stefano Tanzi, who is a senior executive at the company, admitted that Parmalat had far less cash on hand than it had reported, the SEC complaint said. Del Soldato told the bankers that Parmalat's debt had ballooned beyond what was reported on its balance sheet, according to the court papers. Officials at the New York firm urged the Tanzis to publicly disclose the deterioration in the company's financial position, but they refused, the SEC said.
"We are protecting U.S. investors," Linda Chatman Thomsen, a deputy enforcement director at the SEC in Washington, said in an interview. "They raised a lot of money in the U.S. markets." The SEC is seeking disgorgement of ill-gotten gains and undisclosed civil penalties, Thomsen said.
A spokesman for Parmalat declined comment yesterday.
The rapid response by the SEC is yet another example of the agency's attempt at "real-time" enforcement -- intervening to stop an alleged fraud soon after it is uncovered in an effort to minimize damage to investors. In the past year, the SEC has quickly moved to sue WorldCom Inc. and HealthSouth Corp. for alleged violations of securities laws.
Besides the bank account whose existence was later denied by Bank of America Corp., Parmalat also falsely told U.S. investors earlier this year that it used excess cash balances to repurchase debt worth $3.6 billion, when in fact it had not done so, according to court papers. In all, since 1998, shareholders and bondholders in the United States invested nearly $1.5 billion in Parmalat, the SEC said.
The quickly expanding scandal at Parmalat has also turned unwanted attention to Grant Thornton, one of the world's biggest accounting firms. Grant Thornton in recent years has lured scores of clients away from larger rivals, in part by promoting its clean image amid a series of financial scandals that helped bring down competitor Arthur Andersen LLP.
Yesterday two officials from Grant's Italian unit said they had agreed to meet with prosecutors examining their work for Parmalat. Investigators are probing what nearly 20 executives, auditors and employees at Parmalat knew about the Cayman Islands bank account and other, more sophisticated financial structures -- including one dubbed "the black hole" -- that Parmalat executives allegedly used to bury debt and possibly enrich themselves, according to a source familiar with the investigation.
Lorenzo Penca, head of Grant's Italian branch, and Maurizio Bianchi, an audit partner, issued a statement yesterday saying they would meet with prosecutors and denying that they had any connection to "illicit behavior" at the Italian food giant. At the same time, Grant Thornton International, an umbrella organization for the firm's global operations, said it had launched an internal investigation into its Italian unit. Spokeswoman Nan Williams said she would not comment further. Grant Thornton has contended that it is the victim of a fraud committed by others.
Grant Thornton's foreign operations are a loose coalition of offices in 110 countries, employing about 21,500 workers across the globe. Last year Grant billed almost $2 billion, with its U.S. unit taking in $459 million in revenue, a leap of about 25 percent from the year before.
Each of Grant Thornton's branches has its own insurance, and branches do not share profits, making it more difficult for plaintiff lawyers to contend that Grant's U.S. arm should be on the hook for possible breakdowns in Italy, said Chicago-based accounting consultant Allan D. Koltin, who has done work for Grant Thornton in the past.
Grant Thornton SpA, the firm's Italian arm, had reviewed Parmalat's books for years before it turned over the reins to Deloitte Touche Tohmatsu in 1999 after Italian law forced a switch in auditors. Grant Thornton continued to audit Parmalat subsidiaries, including Bonlat Financing Corp., a Cayman Islands unit that regulators describe as being at the center of their investigation.
AI
.......According to the Great Pumpkin, ".....You're in .....iHub....., Charlie Brown....."!!!
