Fraud Case Opens For Italian Dairy Giant

PARMA, Italy (AP) — Just 10 days after two Enron executives were convicted of fraud in Texas, a court in this northern Italian city launches proceedings Monday aimed at proving fraud in the euro14 billion (US $18 billion) collapse of the Parmalat dairy giant — Europe's largest corporate failure.

PARMA, Italy (AP) — Just 10 days after two Enron executives were convicted of fraud in Texas, a court in this northern Italian city launches proceedings Monday aimed at proving fraud in the euro14 billion (US $18 billion) collapse of the Parmalat dairy giant — Europe's largest corporate failure.

Parmalat's swift and stunning failure was a blow to corporate Italy and shattered the pride of this pristine city of cobbled streets where the dairy empire was as prized as the city's other gastronomic legacies, parma ham and parmesan cheese.

But Parmalat's clean image as a simple dairy business — albeit one that sold milk, juice and baked goods in 30 countries — concealed a tangled financial web that unraveled when company officials admitted in December 2003 that they had lied about how much cash they had on hand.

The company declared bankruptcy, revealing a net debt of more than euro14 billion — eight times higher than previously claimed.

"A house of cards," according to chief prosecutor Gerardo LaGuardia, who said in an interview that he expects the eventual trial will end in a rash of convictions. "There is no doubt. The evidence is overwhelming."

Among the 64 people who risk fraud charges are Parmalat founder and ex-CEO Calisto Tanzi, who stepped down as it became clear that Parmalat's cash assets couldn't meet looming deadlines with creditors, and his longtime righthand man and CFO Fausto Tonna.

The case in Parma is just one of several against former Parmalat executives and a cast of characters ranging from former auditors and financial advisers to employees in the dairy company's overstretched Latin America operations. But it is the most important because it alleges fraudulent bankruptcy and in some cases criminal association, and carries the highest penalties: up to 15 years in prison. Both have denied wrongdoing.

In September, Milan prosecutors opened a trial 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 sentenced to 2 1/2 years in prison in the same case after reaching a pretrial plea agreement, along with 10 others, last June.

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. The banks have denied wrongdoing.

Prosecutors in Parma also are investigating the role of Parmalat's creditor banks in the collapse.

The Parma proceedings will get off to a slow start. Three days have been scheduled for a closed-door preliminary hearing beginning Monday, but court officials say the process could extend for months as some defendants are expected to seek pretrial plea agreements. The trial itself isn't expected to begin before fall.

Because of the number of defendants, the hearing is being held in a renovated sugar factory, now a convention center where, coincidentally, shareholders in the new Parmalat held their first meeting last November, a month after Parmalat Finanziaria SpA returned to the Milan stock exchange. Two conference rooms set aside for the proceedings can accommodate 300 people, and will be connected by audio-video equipment.

While Parmalat is often referred to as Italy's Enron for the scale of its losses, the cases also highlight differences between how the two countries have reacted to the scandals.

Giovanni Salvi, a member of Italy's board of magistrates who contributed to a book comparing the Enron and Parmalat scandals, said the response of the criminal justice system in the United States was much more swift than in Italy, and the penalties much harsher. Enron founder Kenneth Lay and former Enron Chief Executive Jeffrey Skilling face more than 20 years in prison on their fraud convictions during sentencing scheduled for September.

The United States also put more value on transparency, while in Italy the trend has been the opposite, Salvi said, pointing to a law pushed through by former Premier Silvio Berlusconi's government before the Parmalat scandal broke decriminalizing false bookkeeping.

"To have an efficient economy, you have to have an efficient court system," Salvi said in an interview. "Without this, how do you succeed in increasing investment?"

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