Word: parmalat
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Dates: during 2000-2009
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Others were suspicious too. In December 2002, a year before the company collapsed, Joanna Speed, Merrill Lynch's food-industry analyst in London, issued a "sell" recommendation on Parmalat stock. She found the accounts incomprehensible. Yet as late as 2003, Bank of America was still trying to woo Parmalat. In June, Kenneth Lewis, the bank's then chief executive, flew to Parma to see Tanzi. Ferraris recalls that the meeting with Lewis was cordial; he encouraged Parmalat to use the bank's services. "It was a marketing call," Ferraris recalls. "Lewis was saying, we'd love to do more business...
Traveling in the Gulfstream corporate jet with Lewis was Luca Sala, then a managing director of Bank of America in Milan who worked on some of the bank's transactions for Parmalat. Less than a month later, the bank fired him for allegedly fiddling his expenses. He immediately began work for Parmalat. Ferraris says he needed Sala's help to understand a $400 million private-placement setup for Parmalat...
Sala, 40, has since confessed to magistrates that he received more than $20 million in kickbacks from Parmalat while at Bank of America. Most of it came directly from a refinancing of a 1999 Brazilian transaction that is now a central element of bankruptcy administrator Bondi's case against the bank. In that transaction Bank of America raised $300 million in funding from U.S. investors via two entities it set up in the Cayman Islands. The bank used the money to acquire an 18% stake in Parmalat's Brazilian group. News of the transaction sent Parmalat stock soaring...
Ferraris is in trouble too--primarily because of the rosy presentation he made to investors on April 10, 2003. Milan magistrates have indicted him for disseminating false information. In his last few months at Parmalat, Ferraris also worked on several financing deals that are part of the ongoing criminal investigation, including ones with UBS, Morgan Stanley and Nextra Investment Management. In October, Nextra's parent, Italy's Banca Intesa, agreed to pay $208 million to Parmalat to avoid being taken to civil court for misstating the interest rate on a $390 million bond issue...
With hindsight, it's hard to understand why the scandal didn't come to light sooner. Parmalat never publicly explained why it needed to continue borrowing money when its accounts claimed it was sitting on billions of dollars in cash. Nobody appears to have asked whether Cubans really needed $1.3 billion worth of milk powder--enough to supply everyone on the island with 60 gallons a year--and why the powder was being shipped from Singapore, of all places. And nobody challenged a key discrepancy: the amount of debt disclosed on the firm's balance sheet was at odds...