Parmalat Suits Against Grant Thornton, BofA Nixed

By Nick Brown

Law360, New York (September 18, 2009) -- A district judge has tossed suits against Bank of America Corp. and auditing firm Grant Thornton International relating to the 2003 bankruptcy of Italian dairy giant Parmalat SpA.

The suits, both part of a 2006 multidistrict litigation in the U.S. District Court for the Southern District of New York, allege the defendants helped Parmalat insiders orchestrate a massive fraud that ultimately led to the company's bankruptcy.

A Parmalat subsidiary sued Bank of America, while the company's chief executive, Enrico Bondi, sued GTI and its U.S. business Grant Thornton LLP.

But Judge Lewis Kaplan granted the defendants' summary judgment requests in an opinion issued Friday, dismissing both cases.

The judge rejected Parmalat's arguments that Bank of America and GTI adversely affected the company by taking part in the fraud.

Parmalat “cannot get around the fact” that it “raised and spent millions of euros for corporate purposes,” the judge said. “The actions of its agents in so doing were in furtherance of the company's interests even if some of the agents intended at the time they assisted in raising the money to steal some of it from the company.”

The judge also ruled that plaintiffs relied on hearsay in building their cases, attempting to pass it off as “sworn documents.”

Parmalat filed for bankruptcy in 2003 after the discovery of a massive fraud in which the company overstated its assets by about $16 billion and understated its debts by $10 billion, the ruling said.

Various schemes associated with the fraud allowed the company to greatly expand under false pretenses, but the growth ultimately became unsustainable, sending the company into bankruptcy.

In one particular scheme, “insiders at Parmalat ... used misleading transactions … to create the appearance of a fictitious sale of 300,000 tons of powdered milk to Cuba for $620 million,” the ruling said.

Parmalat’s bankruptcy filing was the biggest corporate bankruptcy in Europe, and in December 2003, the U.S. Securities and Exchange Commission filed a suit charging Parmalat with “one of the largest and most brazen corporate financial frauds in history.”

The company reorganized in 2005.

Bondi also sued Bank of America in a case that was settled earlier this year, with the bank agreeing to dish out nearly $100 million.

The case involves numerous financial institutions.

Deutsche Bank agreed in February to pay €76.5 million ($108.4 million) in exchange for the dismissal by Parmalat of all pending and future claims against the bank.

At the same time, three other banks — UBI Banca, Banca Popolare dell'Emilia Rompagna and Banca Popolare di Vicenza — agreed to pay €11 million, €12.5 million and €5.1 million, respectively.

Parmalat released a statement Friday expressing disappointment in Judge Kaplan's ruling and vowing to appeal the dismissal.

Representatives from Bank of America and GTI did not return calls seeking comment Friday.

Lawyers for the defendants did not returns requests for comment Friday.

The plaintiffs' attorneys also did not return voice mails from Law360.

Bank of America is represented in the case by Sidley Austin LLP.

Grant Thornton International is represented by Stroock & Stroock & Lavan LLP. Grant Thornton LLP is represented by Winston & Strawn LLP.

Lawyers from Diamond McCarthy LLP represent Parmalat.

Bondi is represented by Quinn Emanuel Urquhart Oliver & Hedges LLP.

The MDL is In re: Parmalat Securities Litigation, case number 04-md-1653, in the U.S. District Court for the Southern District of New York.

--Additional reporting by Jesse Greenspan