Parmalat Scandal Widens; U.S. Insurers May Hold $1.6 Billion in Bonds

January 5, 2004

According to the latest accounts, Parmalat, the Italian dairy and food processing company, may have a shortfall in its accounts in excess of 8 billion euros ($10.1 billion), putting it on a par with Enron, as one of the world’s biggest financial scandals ever.

Moody’s Investors Service and A.M. Best have both reported that more than 30 U.S. insurers may have exposures totaling between $1.17 billion (Best) and $1.6 billion (Moody’s – See IJ Website Dec.24). Aflac has the biggest reported exposure, estimated at around $384 million.

Judicial and regulatory authorities in Italy and the US are still probing the company’s finances, especially the role of offshore shell companies, offshore units, and suspect loans used by the now bankrupt group to hide money and to shore up its crumbling finances.

The Securities and Exchange Commission has undertaken a broad probe of Parmalat’s U.S. activities in an attempt to find financial misstatements and misrepresentations in its sale of billions of euros worth of Parmalat bonds through the Bank of America and other banks. One SEC official told the BBC that the scandal was a “brazen corporate financial fraud.”

Investigating judges in Parma, Parmalat’s base, will start a fresh round of questioning with the interrogation of Fausto Tonna, the company’s former chief financial office and a close associate of former CEO and founder Calisto Tanzi. He is one of six Parmalat executives, including Tanzi, and two outside auditors arrested over the collapse of the food group, who are being questioned. Tanzi earlier admitted diverting 500 million euros ($630 million) from Parmalat to finance other parts of the business controlled by his family. No one has yet been charged in the case.

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