MILAN -- A judge on Tuesday ordered former Parmalat SpA Chief Executive Calisto Tanzi to remain in prison amid accusations he contributed to the near collapse of the Italian dairy company by siphoning off millions of dollars from the company's balance sheet.
Judge Guido Salvini rejected the defense request that Mr. Tanzi be granted house arrest pending formal indictment for what the U.S. Securities and Exchange Commission called in a lawsuit against the company "one of the largest and most brazen corporate financial frauds in history."
Parmalat filed for bankruptcy protection after it was revealed that a Cayman Islands subsidiary, Bonlat, didn't have about €3.95 billion ($4.9 billion) in a Bank of America account.
Prosecutors probing the implosion of Parmalat claimed a dramatic break Monday, as Mr. Tanzi admitted to being involved in the fraud at the company he founded, according to two people who attended his interrogation. Prosecutors say as much as €800 million may have been misappropriated. Mr. Tanzi acknowledged siphoning off €500 million, according to the two sources. (See related article1.)
When asked Tuesday about the reported admission of misappropriating €500 million, Mr. Tanzi's attorney, Michele Ributti, refused to confirm a figure, although he said it was "reasonable" to think that was correct.
"It's not certain. I won't talk about a figure, but it's reasonable to think it's that," he told reporters as he arrived at the prison for a new round of questioning Tuesday by Milan prosecutors.
He said some of the money went to the Tanzi family's tourism businesses. "The tourism sector was fed by financing coming from Parmalat. This was confirmed," he said. The family controls a loss-making unlisted travel company, Parmatour.
Meanwhile, Stefano Tanzi, Mr. Tanzi's son and also a former CEO of Parmalat, arrived Tuesday morning at the prosecutors' office in the company's home base of Parma. Officials there declined to comment.
The Parmalat case, one of the biggest financial scandals to hit Europe, bears resemblance to the collapse of U.S. energy trading giant Enron, which also used a complex web of related companies to hide billions in losses. Parmalat had some 200 subsidiaries, including Bonlat.
U.S. securities regulators are suing Parmalat for "grossly overstating its assets" to U.S. investors, who hold some $1.5 billion in its bonds and notes. Regulators are seeking civil penalties, repayment of ill-gotten gains with interest and permanent injunctions against future fraud.
Calisto Tanzi, who was detained by police on Saturday, is among 20 officials under investigation in the case. Prosecutors have accused him of fraudulent bankruptcy, market rigging, making false statements and false accounting.
The judge overseeing the investigation was quoted in Italian newspapers as saying the company's total debts run as high as €10 billion to €13 billion, although Parmalat officials have said the figure is lower.
The company said in a statement Tuesday that it was "conducting normal business operations" under new head Enzo Bondi and was seeking to reassure its suppliers that they will get paid.
Parmalat, Italy's eighth-largest company, reported sales of €7.5 billion in 2002. It employs 36,000 people world-wide, including 4,600 in the U.S. and Canada. Its Chicago bakery is the third-largest cookie producer in the U.S.
--The Associated Press contributed to this article.
Prosecutors probing the implosion of Parmalat SpA claimed a dramatic break Monday, as founder Calisto Tanzi admitted to being involved in the alleged multibillion-euro fraud at the Italian dairy titan, according to two people who attended his interrogation.
Meanwhile, U.S. securities regulators, in a suit, accused the company of selling about $1.5 billion in debt securities, and even trying to sell itself, to U.S. investors while engaged in fraud. In a civil suit filed in a New York federal court, the Securities and Exchange Commission said Mr. Tanzi, then Parmalat's chairman, and his son, a senior executive, met with a New York private-equity and advisory firm Dec. 9 to discuss a possible leveraged buyout. The complaint says top Parmalat executives admitted during the meeting that the company's financial statements weren't accurate, and talks broke down when the Tanzis said they weren't willing to publicly disclose the discrepancies.
Linda Thomsen, the SEC's deputy enforcement director, declined to identify the New York investment firm.
An Italian judge was expected to formally confirm Tuesday the arrest of Mr. Tanzi on prosecutors' allegation that he committed fraudulent bankruptcy, a move that would allow magistrates to detain him pending a formal indictment and trial. In their official arrest warrant, prosecutors investigating the dairy company increased their estimate of the money Mr. Tanzi allegedly misappropriated to €800 million ($994 million).
The Italian judge questioned the fallen dairy mogul late into the evening at Milan's San Vittore prison Monday to determine whether prosecutors' allegations -- which led to his being taken into custody Saturday night -- are sufficient to keep Mr. Tanzi in jail pending an eventual trial. During the interrogation, Mr. Tanzi's lawyers sought house arrest for their client, Italian news agencies reported.
Mr. Tanzi admitted to the overall accusations leveled against him by prosecutors, and acknowledged that he had misappropriated some €500 million from Parmalat, according to two people present at the four-hour interrogation. "It was a generic admission," one of these people said. When asked about the alleged falsifications of the company's accounts, Mr. Tanzi answered: "Those are things that I knew," according to this person.
But many questions remain unanswered in the investigation -- not least of which the ultimate one of where the money went. Mr. Tanzi didn't give details on how the money had been diverted or where it is now, according to another person present at the interrogation. Prosecutors hope to find out more at another round of questioning Tuesday, this person said.
Mr. Tanzi's lawyer, Fabio Belloni, didn't respond to messages left at his office seeking comment. News agencies and television networks quoted Mr. Belloni as saying outside the courtroom that Mr. Tanzi "admitted to money being missing" at some Parmalat companies. Over the weekend, Mr. Tanzi's lawyers had told reporters that no money had been misappropriated from the company.
The implosion of Parmalat has in a matter of weeks turned into one of Europe's biggest-ever financial scandals. Prosecutors say roughly €7 billion has gone missing from the global milk and food company, and the collapse of Parmalat's shares and bonds has singed investors in Italy, the U.S. and elsewhere.
The scandal is also making big waves among regulators, politicians and investors in Europe, prompting widespread calls in Italy for the creation of a much tighter securities-regulatory regime.
The original arrest warrant accuses Mr. Tanzi, 65 years old, of "diverting in his favor and in the favor of companies that are not part of the group some €800 million," according to one of the people investigating the case, quoting from the warrant. Mr. Tanzi is also accused of ordering company employees to destroy documents -- a move that investigators say is making it tougher to determine exactly how the longtime fraud was perpetrated. He is also accused of making false statements and of abusing privileged financial information.
In Monday's questioning, Mr. Tanzi acknowledged being involved in the misappropriation of €500 million, not the €800 million written in the warrant, according to the two people present.
In the warrant, prosecutors accuse current and former Parmalat executives -- including two former chief financial officers, Fausto Tonna and Luciano Del Soldato -- of participating in the scheme.
So far, prosecutors have named 20 people as subjects of their investigation. In addition to Messrs. Tanzi, Tonna and Del Soldato, these also include Gian Paolo Zini, an outside counsel to Parmalat, and two people at the Italian unit of auditing firm Grant Thornton International, according to one person involved in the probe.
Messrs. Tonna and Del Soldato couldn't be reached to comment.
The Grant Thornton unit's chairman, Lorenzo Penca, and partner Maurizio Bianchi said in a statement they had asked for a hearing with prosecutors to tell their side of the story. The firm, which audited one of Parmalat's offshore units, said the two denied any wrongdoing.
Grant Thornton International added in a further statement Monday night that it "has initiated an enquiry" into the matter. This move followed claims from both Grant Thornton's Italian affiliate and the international umbrella organization that the firm was a "victim" of the fraud.
Prosecutors say they believe the alleged spiral of fraud at Parmalat started in the late 1980s. The fraud was meant partly to hide losses -- particularly at Parmalat's vast Latin American operations -- but also to divert money into companies owned by Messrs. Tanzi and Tonna, according to one person involved in the probe.
Mr. Tanzi's family-owned company, La Coloniale Spa, controls 51% of Parmalat's shares, though it isn't clear whether prosecutors allege the firm received any of the missing money. Financial police searched the Parma offices of Coloniale Monday, taking away piles of documents, according to one person involved in the searches.
The way investigators believe the scheme worked, according to the person involved in the probe, is that Mr. Tanzi would direct that Parmalat send money -- via bank transfers -- to companies owned by him or his family. That money -- hundreds of millions of euros over the years -- was then accounted for in Parmalat's books as a credit owed by these family-owned companies, this person said.
In the Cayman Islands, one of the locales at the center of the Parmalat investigation, a judge of the Cayman Grand Court ordered recently that three Parmalat-related companies be placed in provisional liquidation, a step before a final liquidation. Most significant is the provisional liquidation of Parmalat Capital Finance Limited, the parent of Bonlat Financing Corp., which has drawn the scrutiny of investigators. A restructuring division of accounting firm Ernst & Young has effectively been put in control of Parmalat Capital Finance on a provisional basis. Two other Parmalat-related companies, Food Holdings Ltd. and Dairy Holdings Ltd. also were placed in provisional liquidation.
In the U.S., the SEC said Parmalat falsely told prospective U.S. investors this year that it had used cash balances that didn't exist to repurchase debt obligations valued at about $3.6 billion, the SEC said. The SEC said it was asking the court to order Parmalat to pay a "substantial civil monetary penalty" and to enjoin the company from further violations of securities laws.
--Carrick Mollenkamp and Colleen DeBiase contributed to this article.
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