EUROPE’S ENRON - PARMALAT At the end of 2003, the Italian food-giant Parmalat ran into financial problems. While the pro

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EUROPE’S ENRON - PARMALAT
At the end of 2003, the Italian food-giant Parmalat ran into
financial problems. While the producer of dairy products and
beverages ought to have more than 4 billion euros in liquidity, it
appeared that the company could not repay a 150 million euros bond
in time. This only turned out to be the tip of the iceberg: during
the weeks that followed the black hole in the company accounts
increased to over 14 billion, resulting in one of Europe's largest
bankruptcies. Parmalat was founded in 1961 when Calisto Tanzi, a
22-year-old university dropout, took over a small, regional family
firm after his father's death. In the following years, the company
expanded rapidly and employed 36 000 staff in 30 countries at the
time that the scandal went public. From being one of Italy's
corporate success stories, Parmalat's accounting fraud ruined the
savings of more than 100 000 private investors, resulted in serious
reputation damage for the Bank of America, Citicorp, Grant
Thornton, and Deloitte and Touche, and caused financial problems
for dairy farmers across the globe. Interestingly, and in line with
other scandals such as oil Enron and Ahold, only a few analysts had
foreseen the problems at the dairy manufacturer and publicly voiced
their concerns.
As the scandal
unfolded, more and more problems were exposed. First, while the
books displayed a Parmalat account of 4 billion euros at a
subsidiary of the Bank of America in the Cayman Islands, this money
appeared not to exist. Second, Calisto Tanzi admitted that he had
funnelled about 500 million euros away into other (family)
companies and falsified the company accounts. In response, he
stated: "I apologize to all who have suffered so much damage as a
result of my schemes to make my dream of an industrial project come
the Third, the board of directors turned out to be not fully
independent (e.g., one of the non-executive directors weed to work
for Parmalat) and Calisto Tanzi combined my position of CEO and
chairman of the board of directors. Given the huge failure of the
corporate governance system as a whole, Italian prosecutors ordered
trials for more than 20 people, ranging from the former CEO and CFO
to several bank officials and accountants. In 2005, the first 11
officials submitted a plea to prevent jail sentences.
In 2008 former CEO Tanzi was sentenced to 10 years in prison.
According to his attorney, this client is a broken man; who
knew-nothing about finance and simply wanted to provide for himself
and the community. The judge did not convict officials from any of
the involved banks and accountancy firms, as it could not be proven
that they knew or could have known the deplorable financial state
of the Parmalat books. In the meantime, the bankrupt group of
Parmalat firms has been restructured, The Italian Prime Minister,
Silvio Berlusconi, appointed Enrico Bondi to manage the firm’s
rescue. In October 2005, the new Parmalat Group was established and
on 6th October the new corporation was listed on the
Milan Stock Exchange.
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