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Parmalat Probe

An Italian journalist discusses the investigation into the collapse of Italian food conglomerate Parmalat, which is facing an investigation into whether its founder Calisto Tanzi invented paper assets, funneled money to family companies and used extensive fraud to disguise growing losses.

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  • GWEN IFILL:

    The collapse of Parmalat, a food company as well known in Europe as General Mills is in the United States, was sudden and shocking. The company, known best for its long-life milk, has crumbled amid allegations of fraud, and investigators say founder Calisto Tanzi invented paper assets, funneled money to family companies, and used extensive fraud to disguise growing losses.

    The result, a mess of Enron-like proportions, that has mushroomed into one of the largest accounting scandals in history. Tanzi, under arrest since just after Christmas, has since admitted as much as $8 billion to $10 billion is missing from company accounts. Founded as a dairy business in 1961, in the northern Italian city of Parma, Parmalat employs 36,000 people and has more than 130 units across the globe.

    U.S. Grocery store shelves today are lined with Parmalat products, including Archway cookies, Parkay margarine, and Lactaid milk. Last week, the Securities and Exchange Commission sued the now-bankrupt company for fraud. And in Italy, seven other Parmalat officials are also being held in the investigation.

  • GWEN IFILL:

    For more on Parmalat's unfolding troubles, we turn to Mario Calvo-Platero, the U.S. editor for Il Sole 24 Ore, Italy's leading financial newspaper. Mario, I guess the first question we have to ask is, where did all that money go?

  • MARIO CALVO-PLATERO:

    Well, the whole money basically disappeared. Some people hope that the money went into some kind of secret treasure of the Tanzi family and that can be recovered. But the bottom line was that over the years this company was having losses, and they were covering up these losses, and they were creating false liquidity accounts and then they were borrowing against those false liquidity accounts in order to cover up those losses. So bottom line is that the money is gone.

  • GWEN IFILL:

    You talk about the Tanzi family. Describe — tell us about Calisto Tanzi, he wasn't always known as a rogue.

  • MARIO CALVO-PLATERO:

    No. He's a relatively mild man. I've seen him a couple of times here in New York, he would come for openings at the Metropolitan Museum of Art, for some art exhibitions of Parmigianino, a well-known Italian artist. He launched one of their milk products with a huge concert in Central Park, with Pavarotti a few years back.

    And he was, you know, a quiet man and a family man. He was always around with his wife, he would travel with her, and with his son. But obviously, behind the scenes it was a very tight controlled company. And there were some of the managers that had exercised this strong influence on him and clearly in the wrong direction.

  • GWEN IFILL:

    In fact it was his number two right-hand man who ended up ratting him out, wasn't it?

  • MARIO CALVO-PLATERO:

    Exactly. He was called Mr. Tona, who is considered to be a sort of erratic man and at someone at a certain point took control of the situation and started to exercise influence on Tanzi and basically just the two of them were controlling the whole finances of the company — the point that some managers that I spoke to had no idea of what was happening at the headquarters level. And all the financial accounting transactions were handled directly in Parma, and Tona was the man behind Tanzi.

  • GWEN IFILL:

    You talk about what was happening. When you read about this, it sounds like a bad detective novel. Describe for us the fraud that was actually perpetrated here. We're talking about faxed forged letters, invented documents, invented bank accounts.

  • MARIO CALVO-PLATERO:

    Absolutely. It's a staggering story, many people did compare the story to the Enron scandal and indeed it was because there was lots of accounting fraud. But in the Enron case there was a lot of high finance engineering, very sophisticated engineering, maneuvering.

    Here there was very little of that, most of it was really falsifying documents. For example, they claim to have about $500 million in liquidity with Bank of America, and when the accountants wanted to check, they just took the letterhead of bank of America and put, you know, the signature of a name of a secretary, confirming that the money was there, and the money wasn't there. So it was literally fraud at a very low level.

  • GWEN IFILL:

    And the alleged cover up is almost as dramatic. There was one story about someone being ordered literally to take a hammer to a computer?

  • MARIO CALVO-PLATERO:

    Yeah. I mean, they at a certain point they went crazy. You see they didn't think that this was going to evolve into this big scandal. They thought that the scheme could continue. And what they were trying to do was to try to gather some money out of very daring financial operations. They apparently have invested over a billion dollars in derivatives to try to make up the money that would then come back and sort of set everything back in a normal situation.

    But that of course didn't work. So they've lost it all. They were directing the money, first of all, to cover up some of the losses of their private companies, they had privately, they were controlling — the family was controlling privately a big hotel company, a hotel chain.

    Then they would take part of this money to do this derivative operation. And the other part of the money was going to cover up the operational losses of the operational companies. So there were three directions in which the money has vanished.

  • GWEN IFILL:

    You know, in a collapse of this magnitude the first question becomes the same question we asked about Enron, which is where were the accountants and where were the banks where this money was supposed to be? Didn't someone see something irregular going on?

  • MARIO CALVO-PLATERO:

    Well, a couple of the accountants are already in jail in Italy. The two responsible of the accounts have been arrested and they're part of those seven people that you mentioned before. And of course the banks, especially the banks that have organized some of the accounts and that have sold some of these bonds, didn't they know that something was wrong.

    Well, the question is going to be answered and people think that they will be held accountable at least for part of the money that has vanished. There are many American investors, especially corporate investors, especially insurance companies, AIG Life Insurance, for example, New York Life Insurance company, sorry, that have invested substantial amount of money into bonds of these companies.

    So now they're going to claim it back, and what will happen most probably is that we're going to have some kind of WorldCom model development, that is going to be at a certain point a swap between the debtor and the equity, a sort of a debt equity swap. The problem is that most investors will probably be able to get only 20 to 25 cents on the dollar. The company is now probably valued around $3.5 billion. And the present stockholders including many American stockholders that were invested in that have lost all their value.

  • GWEN IFILL:

    Is that where the Securities and Exchange Commission lawsuit comes in?

  • MARIO CALVO-PLATERO:

    Yes. The Securities and Exchange Commission is investigating, Larry West went to Italy, was the number two of the investigation department of the SEC and they are looking specifically at an issue of bonds of about $100 million that was offered in a fraudulent way. But that is the technical aspect to which they will do the investigation.

    And I know that also the district attorney Morgenthau is investigating into this case, and the U.S. Attorney of the southern district in New York, and presumably one of those two will at a certain point bring a criminal indictment, or set up a grand jury to go ahead also on the criminal side.

  • GWEN IFILL:

    Mario Calvo-Platero, thank you for helping us out with this.

  • MARIO CALVO-PLATERO:

    Thank you.

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