Banks’ role eyed in Parmalat scandal

Investigators are closely scrutinizing the role of major international banks in the meltdown of Parmalat, the scandal-ridden dairy group based in Italy, the Wall Street Journal reported on Tuesday.

In particular, the article said prosecutors and investigators are looking at the roles played by Citigroup, Bank of America , and the Credit Suisse First Boston unit of Credit Suisse Group AG

Parmalat announced in December that it was insolvent, and was forced to seek bankruptcy protection in one of Europe’s largest ever corporate scandals.

The scale of the firm’s collapse -- under about 14 billion euros ($17 billion) in debt -- has touched off a wave of lawsuits against six financial institutions by the company’s administrators.

Parmalat’s new managers and a report prepared for prosecutors by an independent consultant contend that a Canadian deal and several other transactions were designed to burnish

Parmalat’s financial profile, the Journal said, citing an internal report and some of the lawsuits filed.

The deals allowed the company’s alleged fraud to go undetected for years, to the detriment of investors, it said.

The newspaper obtained a copy of the report, which stated that Citigroup obliged Parmalat to buy back the bank’s stake in the dairy group’s Canadian unit. But instead of counting the deal as a debt, the report says it was improperly classified as a loan, the Journal reported.

Since its collapse, Parmalat has sued Citigroup for $10 billion, as well as auditors Deloitte Touche and Grant Thornton. It has also stated its intention to bring suit against Bank of America.

Bank of America said it did not believe there were grounds for action against it, the newspaper said. Citigroup said the lawsuit had no merit. CSFB said a Brazilian deal cited by the newspaper involved internationally recognized financing arrangements. 

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