Parmalat

In 1961, a 22-year-old college dropout, Calisto Tanzi, inherited his family-owned prosciutto business, to which he added a pasteurizing facility in Parma, Italy, which was later to become known worldwide as Parmalat. It steadily grew into a diversified multinational dairy, beverage, and bakery company and one of Europe's most influential corporations. In 2002, Parmalat Finanziaria was the holding company of a group of more than 200 subsidiaries operating in 30 countries with assets of €10 billion and annual sales of €7.6 billon. More than 36,000 people were on its payroll. But in December 2003, the company was declared insolvent in one of the world's largest corporate bankruptcy scandals, and Tanzi himself was alleged to have engaged in financial fraud and money laundering in a case that rivals Enron and WorldCom in notoriety.

After the 2003 shock of unexpected bankruptcy at Parmalat, it was later uncovered that the company had kept off–balance sheet debt transactions to the tune of €14.3 billion ($16.9 billion) hidden from the public.

Such irregular accounting practices are illegal, since they give investors and potential investors a false and misleading picture of the financial health of a corporation that can unfairly influence market investment decisions. In fact, Parmalat was able to continue to reap large loans from banks such as Bank of America, Citicorp, Crédit Suisse Group, and Italy's Banca Nazionale del Lavoro while it maintained its false record keeping.

Calisto Tanzi and his family had reached Italian celebrity status before the scandal at Parmalat. Some affectionately called Tanzi “Mr. Milk” after Parmalat's chief product of milk distributed in a special tetrahedron package that extended its shelf life. Many admired Tanzi's risk taking, which had taken him from rags to riches. With control of 51% of the outstanding shares of Parmalat Finanziaria, he ran the firm as a family business. His own net worth was placed at €1.3 billion. He had associated the family business with sports teams and had done much philanthropic work in Parma. He provided funds that went to the restoration of the city's theater and basilica, and he gave to the area's AIDS patients and assisted the local poor. Some would have called him the model entrepreneur—before it came to light that he was a fraudulent deceiver and perhaps the mastermind in the Parmalat scandal.

Authorities claim that for 13 years Parmalat had sought and received bank loans based on revenues that it had inflated by claiming sales to fictitious firms. Investigators reported that Tanzi allegedly conceived the fraudulent scheme, which he executed along with his top managers and some external lawyers and auditors, although the last two professional groups have claimed their innocence. The overall plan began to come to light when, in the winter of 2003, a bond payment that was due went unpaid and it was discovered that €3.9 billion from a Parmalat subsidiary in the Cayman Islands that was supposedly deposited in a Bank of America account did not exist at all. Moreover, the investigation revealed that Tanzi had skimmed and transferred anywhere from €500 million to €1.3 billion to other family firms to cover losses there. In all, a total of €8 billion was missing from the company's “cooked books.” In short, Parmalat was a case where managers simply invented assets to offset huge liabilities and falsified their accounts over a 15-year period, finally forcing the company into bankruptcy on December 27, 2003. Trading in Parmalat shares was suspended the same day.

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