Law Working Paper N° 40/2005 May 2005
University of Genoa, Centre for Law and Finance and ECGI
Free University of Bozen and Centre for Law and Finance
© Guido Ferrarini and Paolo Giudici 2005. All rights reserved. Short sections of text, not to exceed two paragraphs, may be quoted without explicit permission provided that full credit, including © notice, is given to the source. This paper can be downloaded without charge from: http://ssrn.com/abstract=730403 www.ecgi.org/wp
ECGI Working Paper Series in Law
Financial Scandals and the Role of Private Enforcement: The Parmalat Case Working Paper N° 40/2005 May 2005
Guido Ferrarini Paolo Giudici
This Working Paper is based upon a draft prepared for the EU Corporate Law Making Conference (Cambridge, October 29-30, 2004) organized by Harvard Law School and the Swiss Federal Institute of Technology (ETH Zurich). The authors are grateful to Gerard Hertig, Mark Roe, Donald Langevoort, and other conference participants for helpful comments. Drafts of this paper were also presented at the Yale Law School Alumni Meeting on October 8-10, 2004; at a meeting of the Associazione Via Isonzo held in Milan on October 10, 2004; and at a seminar at the Institute of Law and Finance (ILF), University of Frankfurt, on January 18, 2005. The authors are grateful to Theodore Baums, Andreas Cahn, Carmine Di Noia, Jon Macey, Katharina Pistor and other seminar participants for helpful suggestions. Special thanks to Bruno Cova (General Counsel of Parmalat’s Extraordinary Administration), Lucie Courteau and Justin Rainey. The authors acknowledge research assistance by Liliana Emer, Gian Giacomo Peruzzo and Andrea Zanoni. This paper is part of a research project coﬁnanced by the “MIUR – Ministero dell’Istruzione, dell’Università e della Ricerca”, the University of Genoa and the Free University of Bozen. © Guido Ferrarini and Paolo Giudici 2005. All rights reserved. Short sections of text, not to exceed two paragraphs, may be quoted without explicit permission provided that full credit, including © notice, is given to the source.
Coming shortly after the Enron and WordCom scams, the Parmalat scandal offers a good opportunity to compare failures on both sides of the Atlantic. In this paper, we start by tracing Parmalat’s history and describe the frauds and the criminal proceedings and civil actions that followed the company’s collapse both in Italy and the US. We then focus on Parmalat’s governance and gatekeepers, and argue that gatekeepers are substantially undeterred in Italy because of poor enforcement rather than legislative black holes. In fact, law on books, in particular the civil law concerning auditors, is even more severe than common law. We subsequently analyse the causes of under-enforcement and the reasons why Parmalat generated litigation in the US rather than Italy. Drawing from economic analysis, we explain the role of private enforcement and consider the beneﬁts of class actions. In this respect, we emphasize the importance of discovery and pleading rules. We also ﬁnd that the interplay between public and private enforcement is missing in Italy and argue, by way of conclusion, that US securities regulation was transplanted into Continental Europe without sufﬁcient modernisation as to civil procedure in the area of mass claims and complex litigation.
Keywords: corporate fraud, corporate scandals, Enron, Parmalat, directors, board of director, statutory auditors, audit firms, auditor’s liability, gatekeepers, underwriters, financial intermediaries, analysts, insider trading, mandatory takeovers, Consob, law enforcement, public v. private enforcement, regulation, class actions, discovery, contingency fees, civil procedure JEL Classifications: K22, K23, K41, K42
Guido Ferrarini Università degli Studi di Genova – Law School Via Balbi 22 Genoa...