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Racked by a massive fraud scandal, Italian dairy giant Parmalat has agreed to make corporate reforms in a settlement with U.S. regulators that does not fine the company. The Securities and Exchange Commission announced the settlement Wednesday with the insolvent company, which is being restructured in a plan subject to Italian government approval. In a civil lawsuit filed in December soon after the Parmalat scandal exploded, the SEC accused the company of selling nearly $1.5 billion in bonds and notes to U.S. institutional investors and misleading them by grossly overstating its assets in financial statements. At the time, the SEC sought a civil fine, restitution to the investors of allegedly ill-gotten gains with interest and a permanent injunction against future fraud. In the settlement, Parmalat neither admitted to nor denied the allegations but did agree to abide by such an injunction. The settlement must be approved by the federal court in Manhattan, where the SEC filed the suit, charging that Parmalat Finanziaria SpA “engaged in one of the largest and most brazen corporate financial frauds in history.” Among other changes, the company agreed in the settlement to have its board of directors elected by shareholders and for a majority of directors to be independent of company management. The positions of chairman and chief executive also will be split as part of the agreement. Restitution is not part of the accord because the investors are being compensated through the restructuring plan, and fines levied on Parmalat would hurt investors because they essentially will own the company under the plan, SEC officials said. In December, “we had no way of knowing whether the American investors would be treated equitably. Now we know that they will be,” said Lawrence West, an SEC associate director of enforcement. The plan calls for a debt-to-equity swap under which Parmalat would give debtholders shares in the company in place of more than $17 billion in bonds Parmalat owed when it filed for bankruptcy protection last year. The debtholders would lose more than 88 percent of the value of their original investments under the plan. In addition, Parmalat’s noncore assets would be sold, cutting the number of its brands from 120 to 30 and concentrating on milk and other dairy products and fruit juice. At the time of the bankruptcy filing, Parmalat had annual sales of around $9 billion and produced and sold food products in Europe, the United States and around the world, employing 36,000 people in 29 countries. It said earlier this year that it is scaling back to 10 countries. The SEC also has been investigating the role of big U.S. investment banks in helping Parmalat sell the bonds and questioning whether they turned a blind eye to irregularities in company books. Bank of America Corp., Citigroup Inc., Merrill Lynch, Morgan Stanley and Germany’s Deutsche Bank were among the institutions that financed Parmalat’s bond sales or arranged financing deals for the company. None has been accused of wrongdoing by the SEC. Without being specific, the agency said Wednesday that its investigation related to the Parmalat fraud continues. Parmalat disclosed on Dec. 19 that Bank of America wasn’t holding about $4.9 billion of its funds, as the company had reported in September. Since then, the estimated amount missing from its balance sheet has ballooned after what may have been 15 years of false accounting. Parmalat’s founder and former chairman, Calisto Tanzi, has said the company’s balance sheets may be short by $12.5 billion. Prosecutors in Italy say Tanzi has admitted diverting some $640 million from Parmalat to cover losses at a tourism business that was run by his daughter. Tanzi was jailed and later put under house arrest at his residence near the company’s headquarters outside Parma. Italian prosecutors have requested indictments for more than two dozen people and three entities: Bank of America; the Italian division of U.S. accounting firm Deloitte & Touche; and Italaudit, the former Italian branch of U.S. auditor Grant Thornton. Copyright 2004 Associated Press. All Rights Reserved. This material may not be published, broadcast, rewritten, or redistributed.

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