Parmalat Chief Admits Diverting Funds

The founder of Italian food giant Parmalat admitted on Monday that he had misappropriated hundreds of millions of dollars of company funds.

Calisto Tanzi, under arrest for suspected financial crimes at the insolvent dairy company, made the admission during questioning at Milan’s San Vittore prison, one of his lawyers, Fabio Belloni, said.

Tanzi told authorities he had funneled about $624 million away from Parmalat and into other companies, including Parmatour, a family-owned tourism company, Belloni said.

As shock waves from the case rippled around the globe, the U.S. Securities and Exchange Commission on Monday filed suit against Parmalat, seeking substantial fines against the company and accusing it of violating securities laws and misleading bond investors.

Tanzi’s admission came after Italian authorities accused him of embezzling more than $1 billion from his food conglomerate in the last decade.

A judicial source, speaking after Tanzi was questioned, said the 65-year-old former Parmalat chief also had admitted falsifying company accounts.

“He admitted misappropriation and falsification [of accounts], without knowing the arrangements that were entrusted to his officials,” the source said.

Tanzi resigned as Parmalat’s chairman and chief executive two weeks ago amid one of Europe’s biggest corporate scandals.

He was arrested over the weekend and held in jail on suspicion of financial crimes at Italy’s eighth-biggest group, including fraud, false accounting and market rigging.

Neither he nor any of the more than 20 others under investigation has been charged.

In addition to the embezzlement claim, Italian authorities have accused Tanzi of working with Parmalat executives and outside auditors to commit fraud and mask the company’s financial woes.

Earlier on Monday, another lawyer for Tanzi denied that his client and others had colluded to commit offenses. “I don’t think there is any association, certainly not to commit a crime,” Michele Ributti told reporters outside the jail where Tanzi was being held.

The accusations are contained in two documents that supported the decision by authorities to arrest Tanzi. One was written by two public prosecutors from Parma, near Parmalat’s headquarters, and the other by a Milan judge.

The documents depict a pattern of market rigging, false auditing, fraud and misappropriation of funds dating back as far as 1992.

The order issued on Saturday by the Parma magistrates said Tanzi had “diverted in his favor and to companies which are not part of the [Parmalat] group the sum of about 800 million euros.”

They said the misappropriation of funds had aggravated a financial crisis at the group, which owes $12 billion to $16 billion to bondholders and banks.

The two magistrates said Tanzi had ordered documents destroyed and described the creation of billions of euros of false assets to inflate Parmalat’s accounts.

Prosecutors have said their 10-day-old investigation had uncovered a network of offshore shell companies used to mask losses at Parmalat, which until last week was a blue chip on Milan’s bourse.

The company’s shares are now worth next to nothing.

On Sunday, Ributti, one of Tanzi’s lawyers, said there had been “nonexistent” credit items in Parmalat’s accounts, which public prosecutors say show a hole that could exceed $12 billion. But the lawyer said “no money disappeared.”

The magistrates’ order named two former Parmalat chief financial officers, as well as two executives from the Italian unit of U.S. auditors Grant Thornton, as having masked the company’s problems.

The Grant Thornton executives, Lorenzo Penca and Maurizio Bianchi, on Monday denied any wrongdoing. The auditors said they wanted to present their side of the story to the prosecutors. Grant Thornton International has said it is conducting an internal investigation of the Italian unit.

Police on Monday searched Parmalat’s Milan offices and the offices of La Coloniale, the Tanzi family holding company that owns slightly more than 50% of Parmalat.