Parmalat

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Deloitte Founded - 1845

1845

Deloitte founded in London in 1845 by 27-year old William Welch Deloitte, believed to be the first individual retained as independent auditor

Great Western Railway Company - 1849

1849

Great Western Railway Company retained Deloitte as auditor

Fascist Control - 1922-1943

1922 - 1943

After WWII, the Italian monarchy dissolved, King Umberto II forced to abdicate, even though fascist military leader Benito Mussolini effectively ruled from 1922-1943

GT Founded - 1924

1924

26-year old Alexander Richardson Grant created Alexander Grant & Co. in Chicago

Calisto Tanzi Born - 1938

1938

New Democracy - Jan 1, 1948

January 1, 1948

Creation of new democracy, Repubblica Italia

Wide Range of Product for Fam Business - mid 1960s

1965

By mid 1960s, Calisto expanded the family business to a wide range of food products (primarily dairy products)

New Pasteurization Process - 1966

1966

Tanzi learned new pasteurization process developed in Sweden, called ultra-high-temperature (UHT) pasteurization

Strengthening Credibility - 1970s

1970 - 1979

High priority on strengthening credibility with primary objective to increase foreign direct investment

Consob Created - 1974

1974

Created Commissione Nazionale per le Societa e la Borsa, federal agency like SEC and commonly known as Consob that oversees independent audit function

Mandated Independent Audits - 1975

1975

Italian law mandated public company to have audited financial statements by independent firm

Takeover Attempt - 1988

1988

Fought off takeover attempt by US-based Kraft Foods

Large Losses - Late 1980s

1988 - 1989

Parmalat suffered large losses from television broadcasting attempt to compete with Berlusconi's networks and earliest international venture, Brazilian subsidiary established in 1970s; Tanzi & Tonna increased the scope and magnitude of the fraud from increasing losses of Brazilian subsidiary

Public Issuance - 1990

1990

Company went public on Milan Stock Exchange, Italy's largest securities market

Aggressive Acquisition Program - 1990s

1990 - 1999

Aggressive acquisition program to become major international food distributor

Political Scandal - early 1990s

1990

Christian Democratic Party (Democrazia Cristiana) dominated Italian politics for 5 decades after WWII with Tanzi as an important leader and financial support; in early 1990s, the Party collapsed after a political scandal and Silvio Berlusconi, Tanzi's rival, became Prime Minister for 3 non-consecutive terms

Big Six - 1990

1990

Six international accounting firms in 1990 called the Big 6 but subsequent merger and AA demise created Big Four, which audited more than 95% of all required companies to be audited by Consob or other government mandates

GT Auditor - 1990

1990

Parmalat retained GT as auditor when went public in 1990

Bond Issues - 1995-2003

1995 - 2003

Floated 35 bond issues, several exclusively marketed in the US

GT Aware of Fraud - 1997

1997

Senior member of GT audit team confessed awareness of large "hole" as early as 1997, but CFO convinced him that the "hole" would be filled in 3 years by profitable operations

D&T Appointed - 1999

1999

Forced to replace GT in 1999 and chose D&T, who was the auditor when accounting fraud exposed in late December 2003

Organizational Structure - 2003

2003

200 interlocking corporations and subsidiaries including 20 finance companies, which thwarted government oversight that was deeply resented in Italy

International Operations - 2003

2003

More than 36,000 employees and operations in 30 countries; Tanzi wanted to become the "Coca-Cola of milk" (12B glasses of Parmalat milk consumed annually)

Questioned Parmalat's Borrowings - early 2003

2003

Institutional investors and large investment firms (Lehman Brothers and Merrill Lynch) questioned Parmalat's borrowings with billions in unrestricted cash

Account 999 - late 2003

2003

Majority of reported assets were a product of Account 999 by later 2003; "trash bin for fake revenues, assets, and profits"

Consob Question D&T - early 2003

2003

Consob asked D&T about suspicious items but D&T less than candid

Liquidity Crisis - Nov 2003

November 2003

Parmalat officials mistakenly admitted to difficulty in paying off a small bond issues, which triggered more questions and issues

Destroy Computer - Late December 2003

December 2003

Claudio Pessina, financial accountant for large Italian food conglomerate Parmalat, was ordered by CAO Luciano Del Soldato, the immediate supervisor, to destroy his laptop with a large hammer

BOA Fictitious Account - Dec 2003

December 2003

Tanzi visited Prime Minister Berlusconi privately in Rome one month earlier for emergency government loans or loan guarantees; BOA revealed fictitious $5B cash account, causing bankruptcy and placement under government-appointed management team

Parmalat Bankruptcy - December 24, 2003

December 24, 2003

Parmalat filed for bankruptcy on Christmas Eve, 2003

Tanzi Indicted - Dec 27, 2003

December 27, 2003

Tanzi indicted and arrested for fraud; business press compared to Enron, almost exactly 2 years prior, as "castle of cards"

Arrests - December 31, 2003

December 31, 2003

Italian law enforcement arrested Del Soldato and 7 other executives for being involved in the largest accounting fraud in European history (1.5% of Italy's GNP, which was a much larger impact on Italy's economy than Enron or WorldCom on the US economy; fraud for more than 15 years; overstated assets by $16B; understated liabilities by over $10B; recorded $5B fictitious cash from BOA deposit; used mysterious inter-company account, Account 999, as virtual garbage dump for fictitious assets)

Audit Committee Permitted - 2004

2004

Italian law allowed audit committee instead of board of statutory auditors, which can issue annual audit report in addition to auditors'

PwC Appointed - 2004

2004

New government-appointed management team chose PwC as new auditor

IFRS Required - Jan 1, 2005

January 1, 2005

IFRS required since January 1, 2005; one minor difference between US and Italian auditors' responsibilities

Judge Kaplan Ruling -2005

2005

Judge Lewis Kaplan, federal judge in Manhattan US District Court, issued ruling on "one firm" argument, which was "dawn of "one international accounting firm liability"

Fausto Tonna Convicted - 2005

2005

Fausto Tonna, former CFO, convicted to 30-month sentence, but converted to community service

Modest Operating Profits

2006

Posting modest operating profits and listed on Milan Stock Exchange

D&T Settled Lawsuit - Jan 2007

January 2007

D&T agreed to pay $149M to settle lawsuit against former bondholders

Calisto Tanzi Sentenced - Dec 2008

December 2008

Tanzi sentenced to 10 years but reached age 70 one month prior to sentencing, so very unlikely to serve sentence even if appeal denied

Judge Kaplan Ruling - 2009

2009

Judge Kaplan issued ruling on "one firm" argument that "parent can't hide from misdeeds of its children"

GT Civil Lawsuit Dismissed- 2009

2009

Ironically, Judge Kaplan dismissed same bondholders' claims against GT as losses due to misconduct of Parmalat's management

DTT Reorganized - 2010

2010

DTT organized as Swiss verein, German term for union or voluntary association of businesses or not-for-profits, and best known verein worldwide; in 2010, reorganized as private company under UK laws