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How it all went sour

T a n zi h as adm itt e d t ra n s f e r r in g so m

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Unformatted text preview: T a n zi h as adm itt e d t ra n s f e r r in g so m e €5 00 m i ll ion to fa m ily firms , but in vest i ga t o r s t e ll TIME th a t u p t o € 1. 3 bi ll i o n may h a ve g one t h i s ro u t e . B ut o ne h u g e m y s t e r y r e m a in s: how c o ul d s u c h a cr ude f o r ge r y h a v e co nt i nu e d f o r s o l o n g, a n d o n suc h a ma ss i ve sca l e? F o r years, Pa r m alat de alt w it h th e w or l d's l arges t bank s , it s mo s t s o p h isti ca t e d i n- v e s t o r s a nd it s mo st r e pu tabl e a u c Ut o r s . How d i d th ey m i ss t he s i gn a ls t ha t t he com- p a n y was c h eat ing? It ' s n o t a n acade mi c q u e s ti on: if Par rn a l a t had go n e b u s t in 1 99 5, w h e n i t co ul d n o l o n g e r f i l l al l i t s fun c U ng n ee d s i n I t a ly, i t w o u ld h ave b ee n a mi d- s i zed I t a li a n fa il ur e wiU , de b t s o f ab o ut €560 mi l li o n. I n s t ea d, P a r rna l at t o ok i ts wa rpe d fin a n ces g l ob a l . By t he t i me of th e co l l aps e e i g ht y e a r s la t e r, it owed i t s i n v es t o r s € 1 4 bill i o n . Ba nk o f A me rica a l o ne, b egi n n in g i n 1 997 , a rr ange d $ 1 .7 b il l i o n i n fin a n c in g t hro u g h b o nd s an d p r iva te p l ace m e nt s fo r u . s, i n v es tors , an d r e cei v ed m o r e t ha n $ 3 mi l l i o n i n f ees a nd comm i s s i o n s . Cit i gr o up s y s te m a t ica l l y pac k age d an d r eso l d t he f ir m's r ece ivabl e s, e v e n i n s t a ll in g it s o wn s oftware at P a rm a l at hea d q u a r te r s to h e lp tr a ck th em; . be t wee n 19 99 an d 20 3, it ea r ne d $ 3 5 mi l l io n . Gr a nt Thorn to n a nd D el o i t t e & T o u c h e s i gned o f f on it s i n- c r easi n g l y s ur re a l a cco unt s and boo k e d m i l l io n s o f d o l l a r s in fees fo r d o i n g s o. In t he co mp a n y 's f i n a l weeks, D e ut sc h e · Ba n k too k on t he ass i gnm e n t of h e l p i n g i t work Wi U, S t an d a rd & P oor 's , whi ch kep t i t s " i n v es t me n t gra d e " r a tin g on th e f i r m un t i l 10 days b e f o r e t h e co l laps e . A n d ana l ys t s w o r l d v v ide e nc o u r aged inv es t o r s t o k e ep bu yi n g i t s s t ocks a n d bo nd s. Ac c or d i n g t o o ne s t u dy, 75 % o f t h e a na l y s t s cov er i n g P a r- m a lat h a d a '' bu y ' ' or " n e ut r a l " r a t i n g on t h e s t ock th ree m o n t h s b efor e i t co ll a ps e d. We r e t hese f in a n c i al s t a l war t s v i cti m s o f Pa r ma l a t 's d e ce pti o n s? O r , as th e f a i l e d co m pa n y's bankr u p tcy adm i ni st r a t or E n r i- co Bo n d i a l l e g es, wer e t h e y mor e like w e ll- paid enab l e r s, l oo king t h e o t he r way wh il e h e l p in g P a rm al at h o bbl e t owa r d r u in ?...
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T a n zi h as adm itt e d t ra n s f e r r in g so m e €5...

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