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Parmalat takes the offensive

Financial Times: Parmalat takes the offensive

By Paul Betts

Published: August 3 2004 04:00 | Last updated: August 3 2004 04:00

The Parmalat affair confirms the old saying there are two ways to be wealthy – owning lots of money or, alternatively, lots of debt. In terms of the latter, Enrico Bondi can consider himself a very rich man. The Italian company’s government appointed administrator seems to have made good use of his overdraft.

While Shell is paying $120m to the US Securities and Exchange Commission to settle investigations into its reserves scandal, Parmalat is getting away without paying a dime for one of the biggest frauds in corporate history.

When the scandal broke, the SEC rushed 14 investigators backed by the FBI to Italy. Yet instead of asking for its usual pound of flesh (or rather slice of cash), it has heeded Mr Bondi’s appeals to avoid further penalising creditors by imposing a fine Parmalat was in no position to pay.

That cleared the way for Mr Bondi to take the offensive against banks accused of aiding the giant fraud. Within hours of the SEC settlement, he sued Citigroup and is considering action against the likes of Deutsche Bank, UBS and Bank of America.

Mr Bondi still needs to secure the approval of creditors – including the banks he is targeting – for his salvage plan involving, among other things, debt-to-equity conversion. By becoming shareholders, the banks might well have thought to hold the ultimate weapon to block legal action.

They should think again. Under the SEC settlement, Parmalat pledged improved governance including a rule preventing major shareholders or board members blocking any legal action they may face.

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