How It Went Sour

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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, by as much as $2.6 billion, with the corporate data on file at the Italian central bank. In a submission to the Parma bankruptcy court on Nov. 1, Citigroup said it "did not know of Parmalat's real financial condition from the Bank of Italy Risk Register, Bloomberg, or at all. It was lied to repeatedly by Parmalat."

Just how aggressively the Italian investigations will pursue the international financial institutions for their role in the Parmalat collapse — or, conversely, whether the foreign firms will get back any of the money they say they lost — is unclear. As for Ferraris, who is awaiting trial for market manipulation, he is "flabbergasted" by the whole affair. "I believed so much in Tanzi as an entrepreneur that I have a hard time seeing him as anything else," he says. "For 13 years I think he's a genius, and then I find out he's a crook." If Ferraris wishes he had never been seduced by Tanzi, the international banks and auditors no doubt do too.