How It Went Sour

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Deloitte partners in Malta and Brazil also had concerns. In an audit report dated March 28, 2003, Deloitte's Maltese office questioned a $7 billion intercompany transfer that is now known to have been fictitious. The Deloitte partner in Brazil, Wanderley Olivetti, raised such a stink about Parmalat's accounts there that the matter went all the way up to Jim Copeland, Deloitte's then chief executive in New York City. Olivetti's objections didn't prevent Deloitte from certifying the world accounts. Olivetti and Copeland aren't talking; Deloitte says only that "we behaved properly."

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 with you guys." The bank describes the visit as "a courtesy call" and says there were no substantive discussions about transactions or the company's finances.

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 17% in a single day. Bondi alleges that this transaction fraudulently made a loan look like an equity infusion, a charge the bank denies. The refinancing was even more controversial because Sala, it turns out, had an ownership interest in the company formed to handle it. Bank of America says it didn't know that at the time. Sala has been indicted along with two other Milan-based Bank of America bankers. One of them, Antonio Luzi, told magistrates how Sala had given him a total of $900,000 on three separate occasions. Bank of America says that, as Parmalat's second biggest creditor, it is one of the parties most damaged by the fraud — and that it had "absolutely no role in disguising Parmalat's true financial condition." Sala and Luzi were not reachable for comment.