Parmalat Case Study: The Enron Of Europe
Parmalat is a huge and well known dairy product company in Italy. The company does not only operate in Italy, but is an international business. The company’s founder and CEO is Mr. Calisto Tanzi. The company was predominantly run by the Tanzi family. The scandal that happened in this company came to light with the discovery of $14bn in its finances that could not be accounted for.
The scandal has also come to be known as the Enron of Europe. The scandal brought down the company and its senior executives, blue chip European and American banks, accountancy firms and 130,000 shareholders following the discovery of the scandal in 2003.
Details of the Case
The details of how the company came to be a giant and how its fraudulent finances were noticed …show more content…
• International banks such as Citicorp, Morgan Stanley and Bank of America rated Parmalat bonds as sound financial papers, when they should have ideally placed them as worth nothing.
• In 2003, bondholders learn that nearly €4bn of funds in a Bank of America account is non-existent. The bank says the transfer document is a forgery. Trading in Parmalat shares are frozen. Tanzi, various family members and several executives are arrested, including chief financial officer Fausto Tonna.
• In 2004, Parmalat’s debts are fixed at €14.3bn, eight times what the firm had admitted. After initial denials, Luca Sala, Bank of America’s former chief of corporate finances in Italy, admits to participating in a kickback scheme. Furious US creditors file a $10bn class action suit against Parmalat’s former auditors and bankers while Parmalat’s administrators under replacement chief executive Enrico Bondi separately sue Bank of America, Citigroup, Deloitte & Touche and Grant Thornton for $10bn each. The US SEC calls the affair a “brazen corporate financial …show more content…
Five banks – Bank of America, Citigroup, Morgan Stanley, Deutsche Bank and UBS – stand trial in Milan on charges of market-rigging.
In December 2010, Calisto Tanzi, now 72, is given an 18-year sentence and launches an appeal.
In April 2011 after a three year trial, a Milan court acquits four banks – Morgan Stanley, Bank of America, Deutsche Bank and Citigroup – of market-rigging. Prosecutors had demanded that €120m of the banks’ profits be impounded. Describing it as “the death of consumer rights,” a consumer watchdog promises to join shareholders in another case to challenge the verdict. Meanwhile French firm Lactalis launches a takeover bid for Parmalat, which is blocked by the Italian government.
Violations by Different Entities
• As per SOX, board should have more than 50% independent directors. But this was not the case at Parmalat. The board consisted of only 3 independent directors
• Independent directors did not monitor company operations
The scandal has also come to be known as the Enron of Europe. The scandal brought down the company and its senior executives, blue chip European and American banks, accountancy firms and 130,000 shareholders following the discovery of the scandal in 2003.
Details of the Case
The details of how the company came to be a giant and how its fraudulent finances were noticed …show more content…
• International banks such as Citicorp, Morgan Stanley and Bank of America rated Parmalat bonds as sound financial papers, when they should have ideally placed them as worth nothing.
• In 2003, bondholders learn that nearly €4bn of funds in a Bank of America account is non-existent. The bank says the transfer document is a forgery. Trading in Parmalat shares are frozen. Tanzi, various family members and several executives are arrested, including chief financial officer Fausto Tonna.
• In 2004, Parmalat’s debts are fixed at €14.3bn, eight times what the firm had admitted. After initial denials, Luca Sala, Bank of America’s former chief of corporate finances in Italy, admits to participating in a kickback scheme. Furious US creditors file a $10bn class action suit against Parmalat’s former auditors and bankers while Parmalat’s administrators under replacement chief executive Enrico Bondi separately sue Bank of America, Citigroup, Deloitte & Touche and Grant Thornton for $10bn each. The US SEC calls the affair a “brazen corporate financial …show more content…
Five banks – Bank of America, Citigroup, Morgan Stanley, Deutsche Bank and UBS – stand trial in Milan on charges of market-rigging.
In December 2010, Calisto Tanzi, now 72, is given an 18-year sentence and launches an appeal.
In April 2011 after a three year trial, a Milan court acquits four banks – Morgan Stanley, Bank of America, Deutsche Bank and Citigroup – of market-rigging. Prosecutors had demanded that €120m of the banks’ profits be impounded. Describing it as “the death of consumer rights,” a consumer watchdog promises to join shareholders in another case to challenge the verdict. Meanwhile French firm Lactalis launches a takeover bid for Parmalat, which is blocked by the Italian government.
Violations by Different Entities
• As per SOX, board should have more than 50% independent directors. But this was not the case at Parmalat. The board consisted of only 3 independent directors
• Independent directors did not monitor company operations