Accounting & Tax

Parmalat Sues Citigroup for $10 Billion

Asserts that ''the top levels'' of the financial services firm played a crucial part in the multibillion-dollar fraud that led to Parmalat's bankru...
Ed ZwirnAugust 2, 2004

Italian food group Parmalat Finanziaria — which only last Wednesday settled a civil case brought by the Securities and Exchange Commission, which had alleged that the company defrauded U.S. institutional investors — has filed a $10 billion lawsuit against Citigroup.

Parmalat asserted in the lawsuit that “the top levels” of Citigroup played a crucial part in the multibillion-euro fraud that plunged the company into insolvency, Reuters reported. The company filed for bankruptcy on Christmas Eve after collapsing under 14 billion euros of debt — about $16 billion.

“Citigroup engaged in a series of transactions with Parmalat or its subsidiaries whose only economic purpose was to enrich Citigroup, at the ultimate expense of Parmalat,” alleged the lawsuit. “Citigroup’s transactions with Parmalat were knowingly designed to assist Parmalat in a broad, continuing series of fraudulent transactions,” it added.

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The bank did not comment on specifics of the suit, but in a statement it maintained that “Citigroup lost hundreds of millions of dollars as a result of Parmalat’s fraudulent conduct, and we will continue to pursue our substantial claims against the company and defend against frivolous claims in search of a deep pocket.” In May, Citigroup set aside nearly $5 billion in reserves to cover legal costs and settlements for class actions like those brought regarding Enron and WorldCom. Citigroup had previously been named in at least two class-action suits brought by Parmalat investors in the United States, according to Reuters.

Parmalat’s own lawsuit against Citigroup was filed in Superior Court in New Jersey, where major operations of both companies are based, noted The New York Times. It is the first legal action by Enrico Bondi, the trustee appointed by the Italian government to lead Parmalat out of bankruptcy, against the company’s lenders, the Times added.

In the past, Parmalat has said it would file suits against firms that handled its bond sales. The company is now expected to turn its attention to some of the other banks with which it once had relationships; they include Morgan Stanley, Deutsche Bank, and Bank of America.