For a hard-charging executive like Alberto Ferraris, being named chief financial officer of a 7.6 billion company was a career-making moment and he wasn't going to let a few nagging doubts stand in his way. Since the company was Parmalat, the Italian dairy-and-food conglomerate the U.S. Securities and Exchange Commission has charged with perpetrating "one of the largest and most brazen corporate financial frauds in history," and since Ferraris now faces charges of market rigging and issuing false information, he may wish he had heeded those doubts. But back in March 2003, he says, he knew the company had some financial problems but had no idea how bad things were about to get.
Parmalat was trying to style itself as the "Coca-Cola of milk," and Ferraris, 46, a former Milan-based corporate banker for Citigroup, had spent six years building its operations in Canada and Australia. But in late February the company stock had nosedived when the firm's irascible CFO, Fausto Tonna, announced an unexpected new bond issue a fresh increase in corporate debt that came on the heels of several other big capital-raising moves. Parmalat's founder and lifetime CEO, Calisto Tanzi, called back the bonds the following day and replaced Tonna with Ferraris to calm the waters. Within a few days, the thickset new CFO was defending his company before a roomful of financial analysts in Milan. He painted a rosy picture: sales and earnings were up, debt was under control, and the firm was awash in cash. Satisfied that he'd reassured the financiers, Ferraris hoped the worst was over. "It was my job to patch up relations with the market," he told in an interview at his lawyer's Milan office.
Then his doubts started to pile up. First, Ferraris says, he couldn't understand why the company was paying so much to service its debt; the interest payments seemed far higher than warranted for the 5.4 billion in debt on the books. Even more troubling, the company wouldn't give him total access to the corporate accounts. When Ferraris complained to Tonna (who, to his annoyance continued to deal with some of the banks), he says he was told that chief accounting officer Luciano Del Soldato, a 20-year Parmalat veteran, would continue handling the accounts as a consolation prize for not getting the CFO job.
Ferraris reluctantly accepted the division of roles, but wasn't satisfied. So he asked two trusted members of his staff to mount a quiet investigation. After calling around Parmalat's worldwide operations, they came back with shocking news: a total debt estimate of 14 billion, more than double that on the balance sheet. "Until then, I never suspected the accounts were false," says Ferraris.
He knew he had to go to the top. In mid-October he met with Tanzi. Until then, Ferraris says, he had valued Tanzi as "an excellent person, a real entrepreneur" a charismatic but steady leader who was so proficient at math that he always spotted calculation errors in presentations. "I expected him to say, 'Your numbers are wrong.'" Instead, he recalls, Tanzi just shrugged. "He said, 'Eight billion, 11 billion, 14 billion it's all the same.'" Stunned, Ferraris urged Tanzi to call a meeting with the company's banks to explain the situation. Tanzi refused, and Ferraris quit. "I was flabbergasted," he says.
A few weeks later, on Dec. 19, 2003, the biggest corporate scam in European history was exposed when Parmalat confirmed that an account it had claimed to have at Bank of America with 3.95 billion in cash simply did not exist. That was merely the first revelation in the scandal that turned Parmalat into Europe's Enron, a morass of fraud and financial failure made all the more dramatic by the fact that the company was Italy's eighth largest and had established itself as a global consumer brand.
In the past year, the story of Parmalat has emerged in fits and...