Here's the skinny on Europe's enormous financial scandal
In the wake of the financial scandals at Enron, WorldCom (MCWEQ ), and Tyco International (TYC ), European chief executives smugly insisted no such fraud could ever occur in Europe. They spoke too soon. The accounting calamity at Italian dairy-foods giant Parmalat has prosecutors scrambling to find out what happened to $8.5 billion to $12 billion in vanished assets. That sum makes Parmalat one of the largest financial frauds in history. Some questions and answers about the collapse of what was once considered a jewel of Italian capitalism:
What triggered the financial crisis?
Parmalat defaulted on a $185 million bond payment in mid-November. That prompted auditors and banks to scrutinize company accounts. Some 38% of Parmalat's assets were supposedly held in a $4.9 billion Bank of America (BAC ) account of a Parmalat subsidiary in the Cayman Islands. But on Dec.
19, Bank of America reported that no such account existed. In the ensuing investigation, Italian prosecutors say they've discovered that managers simply invented assets to offset as much as $16.2 billion in liabilities and falsified accounts over a 15-year period, forcing the $9.2 billion company into bankruptcy on Dec. 27. Trading in Parmalat shares was suspended the same day.
Why is the Parmalat scandal important?
It reveals an alarming lack of transparency at one of Europe's largest and most global companies. Parmalat has 36,000 employees in 30 countries, and it does $3.3 billion in business in North America, where it not only sells its trademark milk-in-a-box but also owns Black Diamond Cheese, Archway Cookies LLC, and Sunnydale Farms dairy. Parmalat's shares traded in New York and it sold more than $1.5 billion in bonds to U.S. investors. The U.S. Securities & Exchange Commission has sued Parmalat for misleading...