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Unformatted text preview: REL 228/MGT 228 Business, Ethics, and Society Prof. Douglas Lamont WEEK SEVEN: LECTURE/DISCUSSION Theme for the week: Long before the public scandals, the financial scams were well known among Wall Street institutions. They were making it possible with debt finance. Scams and work. I. Financial scams as work . Parmalat . Calisto Tanzi, the founder of Parmalat SpA spent his life selling milk and brokering power. His long-lasting milk filled glasses around the world. In Italy, he financed politicians, bailed out fellow industrialists, and renovated cathedrals. Over the years Tanzi spent at least $120 million on contributions that were marked as regulatory fees. Years of fraud . It includes a $4.7 billion phantom Bank of America bank account (in the Cayman Islands) that buried Parmalat under $17 billion in debt. This is Europe’s greatest white collar crime. In Italy (one of the G-7 countries), since the 1960’s, Tanzi prospered by pulling the levers of power: politics, banking, and the Catholic Church. Today, he and his two children Francesca and Stephano Tanzi, and his brother Giovanni Tanzi are in jail. Parmalat USA Corp. has filed for Chapter 11 bankruptcy. Tanzi imported technology for preserving milk without refrigeration for six months. Parmalat charged a premium for what had been a commodity product. Tanzi became the first to exploit sports marketing , such as ski contests, Formula One racing, and FIFA soccer football. Tanzi played spizzichino , an Italian card game, with important Christian Democrat politicians; his contributions were so numerous to the party that the Italian government gave him a knighthood. Parmalat bought 17 companies in 1993 alone. With newly privatized Italian banks less willing to finance Parmalat, foreign bankers, such as Bank of America, placed $8 billion bonds over ten years. Losses piled up because of inefficient factories, poorly managed inventory, and costly acquisitions. Annual losses of $420 million to $540 million from 1995 to 2001 were concealed. Money was being transferred from Parmalat to other companies owned by the Tanzi family, such as Paramtour, SATA, AC Parma, etc. Calisto Tanzi always wanted to grow, grow, grow. It was like a disease , said his spiritual advisor. Tanzi, a devout Catholic, made a pilgrimage to the Fatima shrine in Portugal before being handcuffed by police in central Milan and driven to jail. Italian bankruptcy law . A bankrupt company can revoke transactions conducted up to two years before a bankruptcy filing if the counterparty knew that the company could not service the debt. Lawyers for Enrico Bondi, Pamalat’s government appointed administrator, have approached CSFB, UBS, Deutsche Bank, Banca Intesa, and Morgan Stanley to negotiate a settlement or face court 1 action of the structured finance and private placement deals completed in 2001- 2003. Did the banks know Parmalat was insolvent? It will be hard to prove, but the threat could force the banks to give more credit to Parmalat as it comes out...
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- Fall '11
- Calisto Tanzi, Enron employees, INVESTMENT BANKING BUSINESS, Parmalat. Calisto Tanzi