Parmalat: US banks caught in spotlight (SEC anxious to know US banks involvement)

Investigators into the collapse of the Italian dairy giant Parmalat are turning the spotlight on America's big investment banks.

Italian magistrates and officials from the powerful Securities and Exchange Commission are examining the role of lenders to Parmalat - which collapsed into administration last month following the disclosure of an €8 billion (£5.6bn) hole in its finances. These lenders include some of the US's largest financial institutions.

An SEC source said that while at this stage an investigation did not imply wrongdoing by the investment banks, it was focusing on placements of notes and bonds in the US. But he added: 'Of course, we are interested in what they knew, and if they did not know about the fraud, why did they not know about it?'

The SEC's inquiries are focusing on up to $1.5bn (£836m) of notes and bonds issued in private placements with US investors. Sources familiar with the situation indicate that banks, including Bank of America and Chase Manhattan (now JP Morgan Chase), led issues totalling more than $1bn.

SEC investigations may also extend to public bond issues if they were executed in the US. American banks involved in these - totalling $8.5bn in the past six years - include JP Morgan Chase, Merrill Lynch and Morgan Stanley.

It has also emerged that Barclays was party to a $500m public bond issue in 1998, making it the largest UK bank involved in Parmalat's financial expansion in the Nineties. A spokesman for Barclays confirmed its involvement, saying the bank's exposure was 'de minimis'.

Parmalat's administrator, Enrico Bondi, has instructed banking firm Lazard to draw up a database of all the financing transactions undertaken by Parmalat in the past 10 years. Company lawyers have made clear that the SEC and Italian magistrates are anxious to know about the involvement of US banks.

Meanwhile, it has emerged that Parmalat's auditor, Grant Thornton, does not have copies of crucial audit documents relating to the company's Cayman Islands subsidiary Bonlat, which is at the centre of the scandal.

The emergence of a €4bn hole at Bonlat triggered the Parmalat collapse. Last week, Grant Thornton, which was Parmalat's group auditor until 1999 but has continued to audit Bonlat and a number of other subsidiaries after that date, said it was launching an internal investigation into the scandal.

However, a spokeswoman admitted that it would be unable to investigate the Bonlat audit because it had handed its only copies of documents to Italian investigators, and that two of the key people involved - Lorenzo Penca, chairman of the Italian unit, and Maurizio Bianchi, lead partner on the Bonlat audit - were unavailable because they had been arrested.

'At the moment, we don't have copies or electronic versions of the papers that would be required if we were to look into the Bonlat audit,' she said.

Rank	Location	Receipts	Donors/Avg	Freepers/Avg	Monthlies
48	South Dakota	20.00	1	20.00	44	0.45	30.00	2

It was in 1978, still during the Carter administration which ended with Ronald Reagan’s election as president in 1980, that Clifford and his younger protégé and law partner, Robert Altman, (husband of actress Linda Carter--of Superwoman fame) began representing a group of foreign investors in what became the 1982 takeover of four U.S. banks, one of which later became First American Bankshares Inc.

Clifford and Altman later testified that they did not know that the investors they represented, who later installed them as directors of First American, were front men for BCCI. In 1991, after federal indictments were issued against BCCI and the relationship between it and First American was revealed, Clifford and Altman resigned their positions at the bank. They were indicted in 1992 on federal and New York state charges of bribery.

Former U.S. arms negotiator Paul C. Warnke and many of the other lawyers in the law firm of Clifford and Warnke left the firm. Clifford, who spent most of his time from then on working on his legal defense against the bribery charges, also underwent quadruple bypass heart surgery in March 1993, and suffered a heart attack shortly afterward. In the same year a New York judge dropped the state charges against Clifford, citing his age and deteriorating health.

Altman was subsequently acquitted after a four-month trial in New York.

In February of 1998 the two agreed to forfeit $5 million to settle Federal Reserve Board charges that they knew BCCI owned First American and had lied about it to bank inspectors. Then in September of 1998 Clifford and Altman settled the last of the civil lawsuits stemming from the BCCI scandal by giving up their claims to $18.5 million in legal fees and First American stock.

Clifford, the consummate Washington insider, enjoyed consistently positive press treatment... representing BCCI, which prosecutors described as a global criminal operation.

U.S. Securities and Exchange Commission
Washington, D.C.

Litigation Release No. 18527 / December 30, 2003

Accounting and Auditing Enforcement Release No. 1936 / December 30, 2003

Securities and Exchange Commission v. Parmalat Finanziaria S.p.A.,
Case No. 03 CV 10266 (PKC) (S.D.N.Y.)

SEC Charges Parmalat with Financial Fraud

The Securities and Exchange Commission today charged Parmalat Finanziaria S.p.A. ("Parmalat") with securities fraud. The Commission's complaint, filed in U.S. District Court in the Southern District of New York, alleges that Parmalat engaged in one of the largest and most brazen corporate financial frauds in history.

The Commission's complaint alleges as follows: From August through November 2003, Parmalat fraudulently offered $100 million of unsecured Senior Guaranteed Notes to U.S. investors by materially overstating the company's assets and materially understating its liabilities. As Parmalat acknowledged in a press release dated December 19, 2003, the assets in its 2002 audited financial statements were overstated by at least €3.95 billion (approximately $4.9 billion). In addition, Parmalat falsely stated to U.S. investors that it used its "excess cash balances" — which actually did not exist — to repurchase corporate debt securities worth €2.9 billion (approximately $3.6 billion), when in fact it had not repurchased those debt obligations and they remained outstanding. The $100 million note offering failed after Parmalat's auditors raised questions about certain Parmalat accounts.

The complaint further alleges that as of the end of 2002, Parmalat purportedly held the €3.95 billion worth of cash and marketable securities in an account at Bank of America in New York City in the name of Bonlat Financing Corporation ("Bonlat"), a wholly owned subsidiary incorporated in the Cayman Islands. Bonlat's auditors certified its 2002 financial statements based upon a false confirmation that Bonlat held these assets at Bank of America. The bank account and the assets did not exist and the purported confirmation had been forged. These non-existent assets are reflected on Bonlat's 2002 books and records and, in turn, in Parmalat's 2002 consolidated financial statements, as well as in its consolidated financial statements as at June 30, 2003, which were provided to U.S. investors to whom Parmalat offered notes from August through November 2003. The complaint further alleges that a private placement memorandum that Parmalat provided to U.S. investors in August 2003 contained numerous material misstatements about the company's financial condition. For example, the memorandum falsely states: "Liquidity is high with significant cash and marketable securities balances...."

The complaint further alleges that on December 9, 2003, Parmalat's Chairman and Chief Executive Officer, and his son, a senior Parmalat executive, met with representatives from a New York City-based private equity and financial advisory firm regarding a possible leveraged buyout of Parmalat. During that meeting, one of the New York firm's representatives noted that Parmalat's financial statements showed that the company had a large amount of cash. In response, the son stated that the cash was not there, and that Parmalat really had only €500 million in cash. Later, Parmalat's Chief Financial Officer joined the meeting. During a discussion of Parmalat's outstanding debt, the CFO stated that Parmalat's debt was actually €10 billion, much higher than the balance sheet showed. The CFO indicated that the balance sheet was incorrect because the company had not repurchased €2.9 billion of Parmalat bonds. The balance sheet falsely reflected that the bonds had been repurchased.

The complaint further alleges that based on these revelations, the New York firm's representatives offered to send members of the firm's restructuring group to meet with Parmalat representatives. The following day, representatives of the firm's restructuring group met with the Parmalat representatives, and informed them that Parmalat needed to publicly disclose the facts disclosed to the New York firm if that firm were to continue to have any involvement. When it became clear that the Parmalat representatives were unwilling to do so, the New York firm's representatives terminated their discussions with Parmalat.

The complaint further alleges that from 1998 through 2002, Parmalat and certain of its top managers and directors, including its then Chairman and CEO and its CFO, actively marketed and sold nearly $1.5 billion in notes and bonds to U.S. investors. Parmalat also sponsored an American Depositary Receipts ("ADR") program. Parmalat's ADRs were originally privately placed in the U.S. on August 9, 1996. Before December 19, 2003, the price of Parmalat ADRs had been artificially inflated by the materially false and misleading statements described above.

Parmalat is charged with violating Section 17(a) of the Securities Act of 1933. The Commission seeks against Parmalat a permanent injunction from future securities fraud violations and a substantial civil penalty.

The Commission's investigation into these events is continuing.

The Commission acknowledges the assistance of Commissione Nazionale per la Società e la Borsa ("Consob"), the public authority responsible for regulating the Italian securities market.

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