Parmalat fraud proceedings open in Italy

Hearings begin after $18 billion collapse of dairy giant

updated 11:40 a.m. ET June 5, 2006

PARMA, Italy - A court opened the most important criminal proceedings in the 14 billion euros failure of the Parmalat dairy company on Monday, with 64 former executives, financial advisers and bankers facing possible fraud charges in Europe’s largest corporate failure.

The key figures in the company’s failure — Parmalat Finanziaria SPA founder and former CEO Calisto Tanzi and his longtime right-hand man and CFO Fausto Tonna — did not show up for the first day of the preliminary hearing, nor was their presence required.

Tonna’s lawyer said his client would seek a plea bargain during the pretrial hearing, citing his “exceptional” cooperation with investigators. Tonna pleaded out in a Milan trial focusing on securities fraud, and received a 2½-year sentence last June.

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“We are now verifying the possible conditions, bearing in mind his contribution to the construction of this case,” lawyer Oreste Domimioni said outside of the closed-door hearing.

Domimioni said it was Tanzi, not Tonna, who bore the responsibility for decisions that led to the company’s bankruptcy.

“Fausto Tonna never participated in any activity that resulted in losses,” Domimioni said. “Tonna’s activities were related to organizing the papers in a way that these losses were not seen.”

The case in Parma is just one of several against former executives and others accused of contributing to the alleged fraud that concealed the company’s mounting debt. But it is the most important because it alleges fraudulent bankruptcy and in 44 cases criminal association, and carries the highest penalties: up to 15 years in prison.

On the first day of the preliminary hearing, which is scheduled to last through at least Wednesday, some 33,000 small investors who lost money in the 2003 crash joined the prosecution as civil complainants. They potentially will seek billions of dollars in damages.

Lawyers addressed the judge inside a convention center being used for the proceedings because of the large number of defendants and civil complainants, while a handful of mostly elderly investors who lost savings in the crash gathered outside.

CONTINUED : Investors blame banks

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