A four billion euro accounting scandal at Parmalat deepened today when the Italian food group's founder and three former finance directors were targeted in a criminal probe.
As prosecutors sought to unravel a complex web of financial transactions that have led Parmalat to be called Europe's Enron, a rescue management team was weighing up the best option for bankruptcy protection.
Parmalat exploded into one of Europe's worst corporate crises last week when the firm said a document showing euro3.95 billion held by a Cayman Islands unit, Bonlat Financing Corp, had been declared false by Bank of America.
Prosecutors launched a fraud probe, and today named in their investigation Parmalat's founder Mr Calisto Tanzi, who resigned last week as chairman and chief executive of Italy's biggest food group, a judicial source said.
Also targeted in the probe into possible false accounting, fraud and market rigging were former chief financial officers Mr Fausto Tonna, Mr Alberto Ferraris and Mr Luciano Del Soldato, all of whom held the post during 2003, other judicial sources said.
Mr Ferraris and Mr Del Soldato were questioned today. They admitted providing false information but said the plan had been thought up by Mr Tanzi and Mr Tonna, one of the sources told Reuters.
Parmalat has 35,000 staff in 30 countries and is one of Italy's best-known brands and its eighth-largest industrial group.
The missing four billion euros dwarfs a euro1 billion accounting scandal at Dutch retailer Ahold and drew comparisons with the collapse of energy giant Enron.
Media reports said the hole could be as big as euro10 billion , making it one of Europe's biggest accounting scandals. Parmalat owes Italian dairy farmers about euro120 million eand has not paid for milk supplies since August, the farmers' group Confagricoltura said.
Parmalat's 6.125 per cent euro-denominated bond traded at about 25 per cent of face value today, traders said, up from as low as 20 per cent earlier. Parmalat stock slumped another 66 per cent to euro0.11, barely one-tenth of its face value. Shares in Italian banks that made loans to Parmalat also fell, led by Capitalia, which lost six per cent. Other blue-chip names like Fiat also suffered on concern about Italian companies with high debts.
"There is a general crisis of credibility and trust in the Italian financial system," said an equities trader in Milan.
US banks are also believed to have big loans to Parmalat. Ratings agency Standard & Poor's said Bank of America's "on and off-balance sheet exposures to the Parmalat group are significant but manageable" given the bank's huge resources. Concern about Parmalat's opaque investment strategy gave way to fears of a default on up to euro 7 billion of bonds as the group failed to find the cash to repay a euro150 million debt issue on time earlier this month. That was despite showing euro4.2 billion of liquidity on its books.