Following such high$-$profile corporate scandals as Enron and WorldCom in the United

States, European business executives smugly proclaimed that the same could not happen on

their side of the Atlantic as Europe does not share America$$s laissez$-$faire capitalism.

Unfortunately, however, they were proved wrong quickly when Parmalat, a jewel of Italian

capitalism, collapsed spectacularly as a result of massive accounting frauds.

Parmalat was founded in $1961$ as a dairy company. Calisto Tanzi, the founder,

transformed Parmalat into a national player by embarking on an aggressive acquisition program

in the $1980$s when local governments of Italy privatized their municipal dairies. While solidifying

its dominant position in the Italian home market, Parmalat aggressively ventured into

international markets during the $1990$s$,$ establishing operations in $30$ countries throughout the

America, Asia$/$Pacific$,$ and Southern Africa. To finance its rapid expansion, the company

borrowed heavily from international banks and investors. Worldwide sales of Parmalat reached

$7\mathrm{.}6$ billion in $2002$ and its aspiration to become the Coca$-$Cola of milk seemed within reach.

However, things began to unravel in $2003.$

Parmalat first defaulted on a $$185$ million debt payment in November $2003,$ which

prompted a scrutiny of the firm$$s finances. Auditors and regulators soon found out that $$4\mathrm{.}9$

billion cash reserve supposedly held in a Bank of America account of the Cayman Island

subsidiary of Parmalat actually did not exist, and that the total debt of the company was around

$16$ billion more than double the amount $(7\mathrm{.}2$ billion$)$ shown on the balance sheet. Italian

investigators subsequently discovered that Parmalat managers simply $$invented assets$$ to

cover the company$$s debts and falsified accounts over a $15-$year period. Following the discovery

of massive frauds, embezzlement, false accounting, and misleading investors. The Parmalat

saga represents the largest and most brazen corporate fraud case in European history and is

widely dubbed Europe$$s Enron.

Enrico Bondi, a new CEO of Parmalat, filed a $$10$ billion lawsuit against Citigroup, Bank

of America, and former auditors Grant Thornton and Deloitte Touche Tohmatsu, for sharing

responsibility for the company$$s collapse. He also filed legal actions against UBS of Switzerland

and Deutsche Bank for the transactions that allegedly contributed to the collapse of Parmalat.

Bondi has alleged that Parmalat$$s foreign $$enablers$,$ including international banks and

auditors, were complicit in the frauds. He maintained that they knew about Parmalat$$s

fraudulent finances and helped the company to disguise them in exchange for fat fees. Bondi

effectively declared a war on Parmalat$$s international bankers and creditors.

The accompanying graph illustrates Parmalat$$s share price behavior. Following a sharp

drop, trading of the company$$s shares was suspended on December $22,2003.$

$($In Two Pages$)$

$1.$ Investigate the role that international banks and auditors might have played in Parmalat's collapse

$2.$ Research Italy's corporate governance regime and its role in the failure of Parmalat.