Fraud Proceedings to Begin in Parmalat Case

Just days after two Enron Corp. executives were convicted of fraud in Texas, a court in the northern Italian city of Parma will launch proceedings aimed at proving fraud in the $18-billion collapse of the Parmalat dairy giant.

Parmalat’s failure was a blow to corporate Italy and shattered the self-image of the city of cobbled streets where the dairy empire was as much prized as the city’s other gastronomical legacies, Parma ham and Parmesan cheese.

A tangled financial web collapsed when company executives 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 $14 billion -- eight times higher than previously claimed.

Parmalat emerged from bankruptcy protection and was relaunched on the Milan stock exchange last October.

Among the 64 people who risk charges in a fraud trial are Parmalat founder and former Chief Executive Calisto Tanzi, who stepped down as it became clear that Parmalat’s cash assets couldn’t meet looming deadlines with creditors, and his once-trusted right-hand man and longtime chief financial officer, Fausto Tonna.

The Parma case is just one of several against former Parmalat executives, auditors, financial advisors and employees. But it is key because it alleges fraudulent bankruptcy and in some cases criminal association, and carries the highest penalties: as many as 15 years in prison.

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 criminal 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. No charges have been filed in that investigation.