Parmalat founder arrested as probe continues into missing Cayman billions

File picture showing former Parmalat 
President Calisto Tanzi, taken in Milan in 1999
AFP PHOTO FILES/DAL ZENNARO 

Sunday, December 28, 2003

ROME, Italy (AFP): Stricken Italian food group Parmalat was declared insolvent Saturday, as financial police arrested the company's founder Calisto Tanzi in a fraud probe into billions of dollars missing from the company's Cayman Islands subsidiaries.

The ruling by a court in the northern Italian city of Parma opened the way for a state-led restructuring of the multinational company which is missing up to 12.5 billion dollars from its accounts.

Tanzi was later arrested in downtown Milan and was being held in a police cell awaiting transfer to prison, the ANSA news agency reported.

The 65-year-old founder of Parmalat was arrested by the financial police acting on orders of the public prosecutor in Parma, where the multinational company has its headquarters.

Prosecutors have been trying to piece together a paper trail of up to 10 billion euros that have gone missing from the accounts of the food group that specialises in long-life milk.

Financial police have already searched the suburban Parma home of Tanzi, who founded Parmalat in 1961 and whom prosecutors want to question over the missing money.

According to sources close to the investigation, Tanzi was summoned to appear before prosecutors in Parma last Wednesday to face questions over alleged falsified accounting.

But Tanzi, who resigned as CEO and chairman of the board two weeks ago, did not appear amid reports he was in Spain, although he assured investigators he would soon return to Italy.

Tanzi was named in a criminal probe last Monday along with several other top executives of the company.

On Wednesday, prosecutors questioned Tanzi's right-hand man for the past 15 years, former Parmalat financial director Fausto Tonna, for the second straight day.

Tonna has reportedly told magistrates that Tanzi had been aware of the day-to-day financial activity of the company.

Several Parmalat employees have said the former bosses of the company had ordered documents and computer files to be destroyed ahead of the investigation into the missing billions.

There are growing suspicions among magistrates that executives, using nothing more sophisticated than photocopiers and scanners, invented contracts that were shown to banks to raise fresh cash.

The crisis, which has stunned the Italian business community and has recalled the spectacular collapse in 2001 of US energy trading giant Enron, broke December 19 when the company's Cayman Islands subsidiary Bonlat found that over four billion dollars supposedly held in a Bank of America account did not exist.

Paramalat's insolvency, meanwhile, opens the way for a state-led restructuring of the company that employs 36,000 people in 30 countries worldwide.

The company on Wednesday filed a petition with the Parma court for protection from its creditors under an emergency government decree.

Saturday's ruling should allow the company to keep operating in Italy by giving priority for payment to farmers who supply it with milk.

Parmalat's creditors have 120 days to file claims, after which the court will decide their priority for payment.

Under an emergency decree issued Tuesday, creditor protection procedures were reformed to allow special commissions to take over and restructure large insolvent companies.

The Italian government has named Enrico Bondi as the special administrator who will head the commission for Parmalat.

Bondi, a 69-year-old restructuring specialist, succeeded Tanzi as chief executive last week.

Parmalat, based in the Collecchio suburb of Parma in northern Italy, employs nearly 4,000 people in Italy making dairy and bakery products, and fruit juices.

Under the new procedure, Bondi has six months with a possible three-month extension to prepare a plan to save the company.

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