Parmalat Suits Against BofA, Auditor Dismissed

(CN) - A federal judge in Manhattan dismissed three lawsuits against Bank of America and auditing firm Grant Thornton over their alleged roles in the downfall of Italian dairy giant Parmalat SpA.

U.S. District Judge Lewis A. Kaplan said the "massive fraud" involved Parmalat understating its debt by nearly $10 billion and overstating its assets by more than $16 billion.

Parmalat filed for bankruptcy in 2003, the largest in European history, after it disclosed that a $4.9 billion account it supposedly had with Bank of America didn't exist.

Enrico Bondi, chief executive of the reorganized Parmalat, and the firm's current executives filed a myriad of lawsuits against banks and auditors in an attempt to recoup funds from the fraud.

Bondi accused the bank and Grant Thornton of helping former Parmalat executives loot the company.

A separate lawsuit brought by Bondi was settled in July, with Bank of America agreeing to pay $100 million. He originally sought $10 billion from the bank.

Judge Kaplan, who is presiding over several Parmalat lawsuits, ruled that Parmalat could not recover funds from a fraud perpetrated by its own executives.

Parmalat, a dairy conglomerate known for its long shelf-life milk, began as a small dairy distributer in Parma, Italy, and grew to a multinational company with operations in 30 countries. Between 1990 and 2003, Parmalat expanded its workforce from 1,217 to 36,256 and opened 136 production facilities around the globe.

The company was also a pioneer in brand advertising. Its founder, Calisto Tanzi, owned an Italian league soccer team, Parma AC, and sponsored several Formula 1 racing teams.

Parmalat's runaway expansion was fueled by its fraudulently gained financing, which also helped it bounce back from near catastrophes.

Following the Chernobyl disaster, an investigation into radioactive milk led to a product recall and a drop in consumer confidence. The failure of a media company purchased by Parmalat added to the company's mounting debt.

It needed constant infusions of cash, which it could only receive if it appeared to be a sound investment, according to the plaintiffs.

Insiders at Parmalat then concocted schemes involving fake transactions and off-shore entities, in order to obtain loans to pay off debt and obtain more loans, the plaintiffs said.

The company's directors hid the fraud in phony financial statements that were allegedly approved by its auditors.

In one particular scheme, the plaintiffs claimed, insiders at Parmalat and Grant Thornton created a fictitious sale of 300,000 tons of powdered milk to Cuba for $620 million.

Bank of America purportedly got involved by engaging in transactions that generated $800 million for Parmalat, despite knowing that the dairy conglomerate was insolvent.

Bondi and the current executives argued that the Parmalat insiders siphoned off billions of dollars of assets from the company for their own personal use, with the help of the defendants. They said Parmalat didn't benefit from the fraud.

Judge Kaplan rejected that assertion, pointing out that Parmalat's inflated stock price helped the company as a whole.

"Plaintiffs simply cannot get around the fact that Parmalat, by means of the transactions complained of, raised and spent millions of euros for corporate purposes," Judge Kaplan wrote. "The actions of its agents in so doing were in furtherance of the company's interests even if some of the agents intended at the time they assisted in raising the money to steal some of it."

After the firm's collapse, Italian prosecutors filed criminal charges against several executives. Tanzi was sentenced to 10 years in prison for his part in the fraud.

Parmalat was relisted on the Milan stock exchange in 2005.

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