Accounting & Tax

Reforms but No Fines for Parmalat

In a settlement with the SEC, the company has agreed to create a shareholder-elected board, maintain a majority of independent directors, and separ...
Ed ZwirnJuly 30, 2004

The Securities and Exchange Commission announced Wednesday that it had settled its civil case against Italian food group Parmalat Finanziaria, according to wire-service reports.

The SEC had alleged that Parmalat defrauded U.S. institutional investors when it sold them more than $1 billion in debt securities in a series of private placements between 1997 and 2002. As of September 30, 2003, Parmalat had understated its reported debt of $7.4 billion by at least an additional $9.2 billion, according to the SEC’s complaint. The company filed for bankruptcy on Christmas Eve.

The settlement with the SEC is the first to emerge from several investigations into Parmalat’s accounting by U.S. and Italian authorities, according to wire service reports. Prosecutors in Milan have said dozens of people are under investigation for false accounting, false auditing, market rigging, and fraud. The case has resulted in the arrests of several executives, including Parmalat founder and former chairman Calisto Tanzi.

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The collapse of Parmalat revealed that 4 of its 13 board members were Tanzi relatives and the rest were employees or had a business relationship with the company, Reuters reported. As part of the settlement, the SEC announced that Parmalat has agreed to adopt corporate governance changes that include creating a shareholder-elected board, maintaining a majority of independent directors, and separating the roles of chairman and chief executive officer.

Parmalat consented to a permanent injunction against further violations of securities laws, and — as is typical for settlements with the SEC — neither admitted nor denied wrongdoing. The settlement includes no monetary penalties, according to the Associated Press, although the commission had originally sought both civil fines and restitution. Since Parmalat is being reorganized subject to approval by the Italian government, said SEC officials cited by the AP, investors would essentially own the company, and fines would only do them more damage.

The settlement must be approved by a federal court in Manhattan, where the SEC filed its suit, added the AP.