The Parmalat Syndrome

How U.S. financial firms -- including Bank of America -- allegedly abetted a multibillion-dollar fraud, and how U.S. regulators are letting them get away with it

There is a huge unfolding American corporate scandal that U.S. officials don't seem to consider an American corporate scandal, a scandal so massive it compares with WorldCom, Global Crossing, and other high-profile corporate frauds in terms of scope, complexity, and amount of money involved. Some of America's great financial institutions are said to have been behind the scam. And if racketeering allegations contained in civil, criminal, and bankruptcy filings in the United States, Europe, and elsewhere are true, court judgments against U.S. banks, U.S. lawyers, and U.S. accountants could run to the tens of billions of dollars -- perhaps even enough to weaken pillars of the global banking system.

But you wouldn't know the import of the scandal from the apparent lack of interest by U.S. regulators and politicians. Unlike with Enron and other white-collar scandals of recent years, there have been no major U.S. public hearings or indictments regarding the decade of fraud and looting that led to the bankruptcy of the Parma, Italy-based global food conglomerate Parmalat SpA. American officials seem content to idly look on as Italian regulators conduct a global investigation into the Parmalat fraud. This inquiry and the prosecution of criminal and civil complaints against U.S. companies have been stymied by a lack of coordination and assistance from regulators outside Italy, particularly in the Cayman Islands, an offshore haven where U.S. banks put together financing deals that Italian officials say served to defraud investors, according to people familiar with the probe.

The roar of U.S. government silence in regard to Parmalat reinforces the impression that the firm's disintegration was a foreign affair. But like so much about Parmalat, this impression is false. This huge bankruptcy scandal -- in which a multinational conglomerate collapsed upon the revelation that $4 billion worth of claimed company bank deposits simply didn't exist -- was, at its core, an American job.

Recent criminal-, civil-, and bankruptcy-court filings in the United States, Italy, the Cayman Islands, and elsewhere allege a vast conspiracy in which U.S. bankers (with the help of allegedly corrupt U.S. accounting firms and lawyers) concocted a financial house of mirrors designed to confuse credit analysts and bewitch investors into pouring billions of dollars into what turned out to be a looting trough.

If many of the alleged villains in the Parmalat debacle are U.S.-based, so are the victims. The list of investors allegedly defrauded by Parmalat-linked bankers prominently includes the California Public Employees Retirement System (CalPERS), which had an investment fund that owned Parmalat stock. (How much is not specified in the court filings I've seen.)

"Much of the core infrastructure of the scheme was built in the United States by American-based bankers, auditors, and lawyers. In a very real way, the U.S. acted as the nerve center for the Parmalat fraud that ultimately resulted in the falsification of the company's financial statements," says an amended complaint recently filed in U.S. District Court in New York on behalf of investors in the company.

Enrico Bondi, appointed by the Italian government to oversee Parmalat as it attempts to emerge from bankruptcy, has filed lawsuits in U.S. courts seeking tens of billions of dollars in damages from banks -- including Citigroup and Bank of America -- and accounting firms such as Deloitte & Touche and Grant Thornton. Each complaint details distinct book-cooking tasks allegedly undertaken by the U.S. firms.

According to a racketeering lawsuit the Italian overseer recently filed in North Carolina, for example, "Bank of America began engaging in a series of systematic, interrelated transactions whose only economic purpose was to enrich Bank of America at the ultimate expense of Parmalat, by making it appear that Parmalat was a thriving, profitable company with a good credit rating and the ability to grow and obtain additional financing."

Evidence described in this lawsuit makes a convincing case that Bank of America -- headquartered in San Francisco when the alleged fraud began in 1997 -- knew Parmalat was a financial black hole as BofA officials induced investors to loan the food firm huge sums of money in a very complicated way. What's not entirely clear is why U.S. prosecutors and regulators are not, apparently, pursuing these charges of massive, organized, U.S.-based fraud.


Many readers will remember Parmalat from a series of vaguely satisfying news stories from a little more than a year ago, stories in which an Italian farm family turned an Italian dairy goods firm into a global food enterprise, then stole from it wholesale. Parmalat imploded at Christmas 2003 in a scandal that seemed bigger, cruder, and more criminal than a long string of American corporate frauds.

Parmalat collapsed almost instantly when a memo detailing $4 billion supposedly held in a Parmalat account at Bank of America turned out to be false. The memo was part of a failed effort to raise money for a loan payment.

Executives at the Italian company forged the memo using scissors, paste, and a copy machine.

This early, superficial account of the Parmalat collapse offered a nice contranarrative to the U.S. corporate scandals of the previous three years. It pleasingly shifted the spotlight on global financial corruption away from American blue-chip corporations to Italy, land of the Mafia and clownishly corrupt politicians. In the year since the Parmalat failure, however, Italian prosecutors and administrators have uncovered an apparent fraud every bit as subtle, sophisticated, and damaging as the corporate scandals that have dominated American media of late. And it was conducted, for the most part, right in the USA.

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