Autumn Of The Patriarch

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The Blackstone talks led nowhere, but the result of the new audit was breathtaking: a Parmalat account at Bank of America in New York City that supposedly contained €3.95 billion turned out not to exist. All the paperwork, including written confirmation of the balance from the bank to Parmalat's auditors, was forged, Bank of America said — apparently using a simple computer scanner. Parmalat has acknowledged that it falsely told investors it used excess cash to buy back €2.9 billion of debt securities during 2003. "What is shocking is that it appears the assets were fabricated," says Evan D. Flaschen, an attorney at U.S. law firm Bingham McCutchen, which represents institutional holders of Parmalat bonds.

Public companies have safeguards against such egregious fraud, but in this case they seemed to have failed. "They were doctoring documents in the most amateurish fashion, and yet got away with it for a decade," says Mel Weiss, a leading U.S. class-action lawyer. "The auditors just accepted it willy-nilly." Grant Thornton, Parmalat's primary auditor for most of the 1990s and still auditor to some of its subsidiaries, initially said it too had been duped. But on New Year's Eve, Grant Thornton suspended the head of its Italian member firm and another partner after the two men were arrested as part of the widening investigation. Both deny any wrongdoing.

	They were doctoring documents in the most amateurish fashion, and yet got away with it for a decade — MEL WEISS, class-action lawyer

The delay in detecting the fraud can be attributed partly to Italy's notoriously weak financial regulators. But many Italians were reluctant to suspect someone of Tanzi's reputation. "Calisto has a profound Christian faith," muses Monsignor Grisenti, who has known him since the late 1960s. But, if involved in this scandal, "somewhere he must have developed a double personality." Others close to Tanzi also describe him as "aggressive," "ambitious," "a born risk taker." "He was always looking ahead to the next thing," says a prominent Parma business leader and Tanzi friend. Tanzi got his start in business as a 21-year-old, when his father died and he took over the family's small prosciutto factory. While visiting Sweden, he saw milk packaged in paper carton boxes, and decided to bring the idea to Italy, where most milk was still home-delivered in glass bottles. The packaging and new methods of pasteurization led to the UHT milk that drove Parmalat's global expansion. "He began with the sprint of an entrepreneur, and never looked back," says Sergio Sacchi, 68, a priest and Tanzi schoolmate who has remained close to the Parmalat founder.

While Tanzi may own a 30-m yacht and used to make regular pleasure trips to the Maldives on the corporate jet, he generally eschewed the flashy lifestyles enjoyed by some self-made Italian millionaires. He usually insisted on driving his own car, a Lexus, and has lived for years in the same big but by no means lavish house on the outskirts of Parma. "The impression he makes is of a kind and generous man, I would even say shy," says Bruno Zanardi, an art restorer and Parma native. Religion is an important element in his life: Tanzi says grace and crosses himself before each meal, and attends Mass regularly and has several clerics as close friends. On his arrival at San Vittore prison in Milan, one of the first things he did was attend a prison Mass and take Communion.

Parmalat grew in part because Tanzi understood early on the power of sports marketing. He began in the 1970s by sponsoring Italy's World Cup ski team, then went on to sponsor Formula One, top-level baseball and volleyball teams as well as the soccer squad. In doing so, Parmalat transformed milk from a commodity into a brand. But following the bankruptcy, Bondi is already looking for a buyer for the soccer team, according to Italian press reports.

According to Tonna's testimony and bankers familiar with the company's operations, Parmalat started running into trouble after costly international expansion in the 1990s into the U.S. and Latin America. The company failed to sell a sufficient number of consumers on its UHT milk, and was further battered by the economic and currency crises in countries such as Argentina and Brazil. To keep the company running, Bondi is currently negotiating fresh bank credit lines and trying to sweet-talk key suppliers into continuing deliveries. Longer term, analysts expect he'll have to sell off or shut down some operations.

Tanzi was in Ecuador shortly before his arrest, perhaps a last-ditch attempt to salvage the company. On the way, he and his wife stopped off in Fátima, the Portuguese town where Catholics make pilgrimages seeking miraculous interventions. It will take something of a miracle to extricate Parmalat from the mess it's in.