Autumn Of The Patriarch

From Milan boardrooms to Parma dairy farms, Calisto Tanzi has long been viewed as the model Italian entrepreneur: hardworking, successful, modest, pious and, above all, generous. Over the past four decades, as he built dairy company Parmalat into a worldwide giant with annual sales of €7.6 billion, he showered his hometown of Parma with his philanthropy. Tanzi helped pay for a major restoration of Parma's theater and 11th century basilica. He poured cash into the local soccer team, making it one of Europe's best, and financed programs for the poor, aids patients and drug addicts. Last February, when the Catholic Church was looking for funds to renovate a mountain clinic for asthmatic children, Monsignor Franco Grisenti only needed to ask, and his old friend Tanzi, 65, immediately made an interest-free loan of €400,000. "He's got that impulse in him to just say yes," the prelate marvels.

Not all of Tanzi's impulses may have been so noble. On Dec. 27, Tanzi was arrested and later charged with fraudulent bankruptcy and false accounting. He is confined to a Milan jail while prosecutors probe an alleged fraud that already totals €7 billion and may turn out to be far larger. Seven other executives were arrested last week, and Tanzi's son Stefano was questioned by prosecutors. The size of the alleged fraud could make Parmalat the biggest corporate scandal ever in Europe, easily on a par with Enron or WorldCom in the U.S.

Parmalat filed for bankruptcy on Christmas Eve, and corporate-turnaround expert Enrico Bondi is trying to salvage what he can of the firm, which has 36,000 employees in 30 countries and top-selling brands including Parmalat uht milk and Archway cookies. On Friday, dozens of company workers and small shareholders in Collecchio — Parmalat's headquarters and Tanzi's birthplace just outside Parma — stormed local banks demanding refunds on their original investment. Investors, creditors and regulators are on the warpath too: last week, the U.S. Securities and Exchange Commission (sec) filed suit against Parmalat in New York district court. But who is Calisto Tanzi, and how did he become embroiled in what the sec claims is "one of the largest and most brazen corporate financial frauds in history"?

Prosecutors allege that over the past decade Parmalat created an elaborate house of cards, including opaque subsidiaries in tax havens such as the Cayman Islands and Luxembourg, to hide the true state of its finances. Tanzi has admitted siphoning off around €500 million from the company to finance other family businesses, but insists that some of his underlings are to blame — they were the ones who devised the accounting fraud, he has told prosecutors, although he accepts ultimate responsibility. One key witness has already emerged: former chief financial officer Fausto Tonna, who has given prosecutors crucial details about the firm's labyrinthine accounting, but insists Tanzi was calling the shots.

The scandal burst into the open in November, when Parmalat had trouble meeting a routine bond payment, prompting tougher scrutiny of its books by its own auditors and Italian regulators. In early December the Tanzis held talks with the U.S. buy-out firm Blackstone Group about a possible sale — and mentioned that Parmalat's published accounts didn't tell the whole story, according to the sec lawsuit.