More Arrests In Parmalat Scandal

Police detained seven more people and issued an arrest warrant for an eighth in the spiraling Parmalat scandal, accusing top former officials at the dairy giant as well as outside auditors with fraudulent bankruptcy, police said.

Separately, an official from the U.S. Securities and Exchange Commission, which has filed suit against Parmalat for "grossly overstating its assets" to U.S. investors, met Wednesday with prosecutors in Milan to discuss the case.

A judicial official said after the meeting ended that prosecutors and the SEC would now look at various institutional channels to see if they could work together in the investigation.

In addition, prosecutors began investigating whether officials from Bank of America may have been involved in Parmalat's fraud, the Italian news agencies ANSA and APcom reported, citing Parma prosecutors. The agencies said three Bank of America lawyers were in Parma awaiting a meeting with prosecutors.

There was no confirmation from the prosecutors' office. There was no answer at Bank of America offices in Italy and calls placed to the bank's headquarters in Charlotte, N.C., weren't immediately returned.

The meeting and detentions were the latest in the scandal that has brought down what was once a model of Italian industry. The company, which has filed for bankruptcy protection, has acknowledged a multi-billion dollar hole in its balance sheet. Parmalat's jailed founder, Calisto Tanzi, has admitted to prosecutors that he shifted euro500 million, roughly $620 million, from Parmalat's coffers to loss-making travel businesses controlled by his family.

Tanzi attorney Fabio Belloni said Wednesday that none of the missing money had been for Tanzi's personal use, and that it had been diverted purely to keep the business afloat.

"It was an attempt to keep going forward, to close certain deals, and give the push to earn in a little way. That's the argument," Belloni told reporters as he arrived at Milan's courthouse for a meeting with prosecutors.

"It wasn't that he put money in his pocket," he said. "The little treasures (or perks) were never there."

Police in Parma, Milan and Como carried out the arrest warrants, detaining Parmalat's former chief financial officer Fausto Tonna, as well as another top former financial official, Luciano Del Soldato, said Maurizio Raponi of Bologna's financial police, which coordinated the roundup.

In addition, two officials with Grant Thornton, Parmalat's auditor from 1990 to 1999, were also picked up. A Milan judge has accused the company's Italy president, Lorenzo Penca, and partner Maurizio Bianchi of having falsely certified Parmalat's balance sheets and of having suggested ways for the company to commit fraud.

Grant Thornton has previously denied that the men had anything to do with any illegal behavior and says they were in fact "victims" of Parmalat's fraud. A company spokeswoman had no comment Wednesday.

Also detained were Gianpaolo Zini, an outside Parmalat lawyer, and Parmalat officials Gianfranco Bocchi and Claudio Pessina, Raponi said. The eighth person, Giovanni Bonici, was in Caracas, Venezuela, but his lawyer told police he would be returning to Italy soon, Ramponi said.

Parma prosecutors who suspect the men of criminal association leading to fraudulent bankruptcy and false accounting issued the warrants.

A new warrant with similar accusations was also served against Tanzi, who has been in Milan's San Vittore prison since Saturday on similar charges.

On Tuesday, a judge confirmed his arrest based on the Parma accusations. Milan prosecutors of market rigging and making false statements to auditors have also accused Tanzi, who founded the dairy company in 1961.

In his ruling requiring Tanzi to remain in prison pending formal indictment, Judge Guido Salvini cited the "concrete risk" that he might try to tamper with evidence or flee if he were freed. Salvini also called Tanzi's statements claiming to have had no knowledge of any falsification of Parmalat documents "improbable."

Salvini also quoted Tanzi as having admitted that over the years, he directed his officials to divert upwards of euro500 million, or about $620 million, from Parmalat's coffers to cover travel companies controlled by his family.

Salvini also accused auditors Bianchi and Penca of falsely certifying Parmalat's balance sheets and of having suggested the "fictitious operations necessary to achieve the fraudulent aims of the group."

In particular, Salvini said the auditors omitted revealing the "irregular situation" of two Parmalat offshore companies, Curcastle and Zilpa. And he said the two also hatched the idea to create the Cayman Islands-based Bonalt subsidiary at the center of Parmalat's bankruptcy.

Parmalat was declared insolvent and placed under the supervision of turnaround expert Enzo Bondi earlier this month after it was revealed that Bonlat didn't have euro3.95 billion — about $4.9 billion

it had claimed was in a Bank of America account.

The case has been compared to the collapse of U.S. energy trader Enron because both companies had bewildering networks of related companies — in Parmalat's case, some 200 subsidiaries.

The SEC, which has alleged Parmalat engaged "in one of the largest and most brazen corporate financial frauds in history," is seeking civil penalties and repayment of any ill-gotten gains with interest for U.S. investors, who hold some $1.5 billion in its bonds and notes.