Parmalat Suit Accuses Citigroup of 'Active' Role in Manipulation of Books

Reeling from a massive fraud scandal involving billions of dollars of missing money, Italian dairy giant Parmalat sued Citigroup Inc. and some of its subsidiaries Thursday, seeking to recover damages, company officials said. The lawsuit charges that Citigroup's Citibank unit, as financial adviser and investment bank, "played an active role in the manipulation of Parmalat's financial results."

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Italian dairy giant Parmalat, which is reeling from a massive fraud scandal involving billions of dollars of missing money, sued Citigroup Inc. and some of its subsidiaries Thursday, seeking to recover damages, company officials said. The court move is part of a process aimed at seeking “recovery from third parties believed to have played a role in Parmalat’s collapse,” said a statement from Parmalat Finanziaria SpA. The lawsuit, filed in state Superior Court in Hackensack, N.J., charges that Citigroup’s Citibank unit, as financial adviser and investment bank, “played an active role in the manipulation of Parmalat’s financial results,” said John Quinn, the Los Angeles lawyer who filed the suit on behalf of Enrico Bondi, the turnaround expert trying to salvage the company. Prior to the bankruptcy, “Citibank was involved in structuring a series of complex financial transactions to disguise the true debt situation and artificially increase reported cash flow from operations,” Quinn said. These included a series of loans made by Buconero LLC, a special purpose entity designed and managed by Citibank, the lawsuit said. The name means “black hole” in Italian, Quinn said, and its actions “made it appear that a series of loan transactions were not debt, but equity investment.” Although the lawsuit does not specify monetary damages, Quinn said, “There’s no question that the loss of value at Parmalat is in the billions of dollars. We’re not saying in this case that Citibank is the only culpable financial institution.” He added, “I think it’s fair to say that Dr. Bondi is reviewing the involvement of numerous financial institutions, reviewing their culpability, and making decisions as to whether to bring claims against other institutions.” The lawsuit was filed in New Jersey because both Citibank and Parmalat have operations there, he said. Those include Parmalat USA and Farmland Dairies LLC, both in Wallington, Bergen County. Any proceeds from the lawsuit will be distributed to future shareholders, the statement released in Italy late Thursday said. Citigroup, which provided investment banking services to Parmalat, issued a brief statement saying it had not yet reviewed the lawsuit and was unable to comment. “However, Citigroup lost hundreds of millions of dollars as a result of Parmalat’s fraudulent conduct, and we will continue to pursue our substantial claims against the company and defend against frivolous claims in search of a deep pocket,” the statement said. An estimated $12.5 billion is missing from Parmalat’s balance sheet after what may have been 15 years of false accounting. Parmalat, which filed for bankruptcy protection last year, settled with U.S. regulators Wednesday, agreeing to make corporate reforms. The settlement with the Securities and Exchange Commission did not include a fine, and Parmalat admitted no wrongdoing. The SEC had 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. The agency 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. In addition to Citigroup, Bank of America Corp., 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. Prosecutors in Milan have been investigating the possible role of investment banks and other financial institutions as well as accounting businesses in Parmalat’s woes, while prosecutors in Parma, near the company’s headquarters, have concentrated their inquiries on Parmalat’s founder and top officials. Banks and other financial institutions that have been probed in the scandal have insisted they were misled about the company’s state of affairs by the Parmalat’s bookkeeping. Bondi is leading efforts to save the juice and dairy conglomerate by slashing the number of brands from 120 to 30 and concentrating on products that were at the core of Parmalat’s development, mainly milk, yogurt and juice. Once with plants and other businesses in 29 countries — including a strong presence in the United States, Europe and Latin America — Parmalat has announced it is scaling back to 10 countries. Among other changes, the company agreed in the settlement with the SEC 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. Copyright 2004 Associated Press. All Rights Reserved. This material may not be published, broadcast, rewritten, or redistributed.

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