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The Parmalat Scandal

The Parmalat ScandalParmalat SpA, an Italian dairy and food company and Europe's biggest dairy company, was declared bankrupt in late 2003.

Its worldwide operations include almost 140 production centers. Over 36,000 workers around the world collect Parmalat pay packets, and 5,000 Italian dairy farms are dependent on the company for the bulk of their business.

At the end of 2003, one of the biggest corporate accounting scandals in history came to light as a 8 billion euro hole was discovered in Parmalat's accounting records.

In 1999, Parmalat set up a subsidiary in the Cayman Islands called Bonlat.

The first indication of financial problems came in early 2003 as the company tried to sell 500 million euro in bonds. After this CFO Fausto Tonna resigned in March replaced by Alberto Ferraris.

The crisis became public in November as the Parmalat Scandal. Questions were raised about transactions with mutual fund Epicurum, another Cayman-based company linked to Parmalat causing its stock to plummet.

Ferraris resigned less than a week later replaced by Luciano Del Soldato.

In December, Del Soldato resigned, unable to get cash from Epicurum fund, needed to pay debts and make bond payments.

Enrico Bondi was called in to help the company. Tanzi himself resigned as chairman and CEO. Parmalat's bank, Bank of America, then released a document showing 3.95 billion euros in Bonlat's bank account as a forgery.

Prime Minister Silvio Berlusconi initiated a Fraud investigation and appointed Bondi to administer the company's rescue.

Calisto Tanzi, once a symbol of unlimited success, was detained hours after the firm was declared officially insolvent and eventually charged with financial fraud and money laundering.

Italians were shocked that such a vast and established empire could crumble so quickly.

Among the questionable accounting practices with which Parmalat dressed up its books: it sold itself credit linked notes, in effect placing a bet on its own credit worthiness in order to conjure up an asset out of thin air.

After his arrest, Tanzi reportedly admitted during questioning at Milan 's San Vittore prison, that he diverted funds from Parmalat into Parmatour and elsewhere.

The family football and tourism enterprises were financial disasters; as well as Tanzi's attempt to rival Berlusconi (another rags-to-riches Italian success story) by buying Odeon TV, only to sell it at a loss of about 45 million euro.

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