Parmalat founder sentenced in company's collapse

PARMA, Italy (Reuters) - An Italian court sentenced the founder of Parmalat SpA to 18 years in prison on Thursday for his role in the Italian dairy company’s 2003 collapse, Europe’s biggest corporate bankruptcy at the time.

Lawyers (L-R) Filippo Sgubbi, Fabio Belloni and Giampiero Biancolella, who are representing the Parmalat founder, Calisto Tanzi, attend a trial in Parma, Italy March 14, 2008. REUTERS/Daniele La Monaca

Parmalat buckled in December 2003 under a 14 billion euro ($18.6 billion) hole in its accounts. Its demise wiped out the savings of more than 100,000 small investors who had bet on Parmalat’s investment-grade corporate bonds.

Calisto Tanzi, who was Parmalat’s chief executive, was found guilty on charges of fraudulent bankruptcy and criminal conspiracy in the main trial in the northern Italian town of Parma over the scandal dubbed “Europe’s Enron.”

Prosecutors had pressed for 20 years in prison for the 72-year-old Tanzi.

The three-man Parma court also sentenced former finance director Fausto Tonna to 14 years in prison. Thirteen other former executives were found guilty, while two were cleared of the charges.

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The defendants are widely expected to appeal against the ruling, a process that can take years in Italy’s slow-moving justice system.

The court ordered defendants to pay the restructured Parmalat compensation of 2 billion euros ($2.64 billion). It also ordered them to pay creditors a sum equal to 5 percent of the nominal value of shares or bonds that they had bought.

The Parmalat crisis erupted when it revealed that a 4 billion euro bank account held by a Cayman Islands unit did not exist. Management sought bankruptcy protection, and prosecutors launched a criminal fraud probe.

Despite its investment-grade credit rating, concerns had swirled for months over Parmalat’s failure to explain why it did not use the abundant cash shown on its balance sheet to cut debt.

Parmalat was restructured and relisted on the Milan bourse in 2005. It has recouped more than 2 billion euros from settlements with banks including U.S. investment banks Morgan Stanley and the former Merrill Lynch.

Additional reporting by Antonella Cinelli in Rome; Writing by Ian Simpson; Editing by David Holmes and Will Waterman