Prosecutors turn up Parmalat heat
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Italian police detained the founder of scandal-struck Parmalat.
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PARMA, Italy (Reuters) -- Prosecutors are pressing Parmalat's former finance chief to reveal how billions of euros vanished from the food group, as U.S. banking giant Citigroup and accounting firms face legal action in the widening scandal.
After 11 hours of questioning Monday, former Chief Financial Officer Fausto Tonna was again taken from prison to the prosecutors' office in the northern Italian city of Parma, close to the headquarters of the now insolvent multinational.
Investigators have accused Tonna of helping devise a web of offshore companies to hold fake accounts and non-existent assets which for over a decade fooled investors and regulators.
Tonna, who Monday told prosecutors he had followed orders from Parmalat's founder, Calisto Tanzi, broached the subject of the food group's banks during four hours of interrogation Tuesday morning, said a judicial source, who did not elaborate.
The 65-year-old Tanzi has admitted to diverting about 500 million euros from the listed company into family funds but has said he did not know how the misappropriation was carried out.
The hole in Parmalat's accounts could exceed $12.7 billion, prosecutors say, making it one of the world's biggest corporate scandals and raising questions for Parmalat's auditors and some global financial industry heavyweights.
A U.S. class action law firm Monday named investment bank Citigroup Inc and auditing firms Deloitte & Touche Tohmatsu and Grant Thornton among defendants in a lawsuit brought against the food group, filed on behalf of a U.S. pension fund.
The lawsuit was one of the first brought by U.S. investors in Parmalat securities and was believed to be the first publicly announced suit to name firms other than Parmalat.
Nearly worthless stock
The group's bonds are trading at about 20 percent of face value and its nearly worthless stock is suspended indefinitely.
Citigroup was not immediately available for comment. It was not clear why it was named in the U.S. suit.
The bank's ties to Parmalat include its helping to create a special purpose vehicle called "Black Hole," or "Buconero" in Italian, used for loans between units in the Parmalat group.
Prosecutors have said an inner circle of Parmalat executives used intra-group loans to extract cash from the group.
The Italian affiliate of Deloitte audited Parmalat's group accounts while Grant Thornton's Italian affiliate certified the Cayman Islands unit at the center of the scandal.
Parmalat's founder Calisto Tanzi is being questioned over the scandal.
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Deloitte has said its 2003 mid-year report drew attention to concerns at Parmalat and it was required to rely on Grant Thornton Spa for the offshore units.
Prosecutors have accused the chairman and a partner of Grant Thornton Spa of helping to devise the fraud. The two auditors, who are among the eight people arrested so far in the case, have denied wrongdoing. No charges have been filed in the case.
Nevertheless, Grant Thornton International's global name had been damaged by the scandal, Chief Executive David McDonnell was quoted as saying in the Financial Times Tuesday.
Major U.S. mortgage lender Countrywide Financial Corp. announced Tuesday that it has appointed KPMG LLP to replace Grant Thornton as its auditor after some 30 years.
But Countrywide emphasised that the change followed a comprehensive review of accounting firms which it began in mid-2003 and was not the result of any disagreement with Grant Thornton on any matter of accounting principles or practices.
In Italy prosecutors also want to hear from some of Europe's biggest banks about their ties with Parmalat.
The U.S. Securities and Exchange Commission is looking to see whether banks had been "negligent or reckless" by selling $1.5 billion of Parmalat bonds to U.S. investors, a senior SEC official was quoted as saying Saturday.
Copyright 2004
Reuters. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.
