Former Parmalat CEO Is Detained

MILAN, Italy — The founder and former head of Parmalat was detained Saturday by Italian authorities investigating how billions of dollars went missing at the insolvent global food group, judicial sources said.

Calisto Tanzi was detained here in Italy’s financial capital on the order of prosecutors probing for fraud at Parmalat, engulfed in one of Europe’s biggest corporate scandals after revealing a multibillion-dollar hole in its accounts.

The scandal has raised far-reaching questions about the conduct of the company’s managers, auditors and banks. It jeopardizes billions of dollars of investments by holders of shares and bonds, as well as about $2.5 billion more of bank loans.

The judicial sources said finance police seized the 65-year-old Tanzi, who stepped down as Parmalat chief executive this month just days before the crisis erupted, on a street in the center of Milan.

Detained hours after Parmalat was declared insolvent, Tanzi was held on suspicion of criminal association and fraudulent bankruptcy, but he was not charged, the sources said. The charges carry a penalty of up to 10 years in jail.

Magistrates searched Tanzi’s home near Parma on Wednesday and tried to question him, only to find he had left Italy for an undisclosed foreign country.

Authorities decided to detain him after he returned to Italy, fearing he could leave again, judicial sources said.

They said the media-shy Tanzi would spend the night in custody in Milan’s San Vittore prison and would be questioned today by investigators from both Milan and Parma.

Tanzi, who took over a dairy plant in 1961 and built it into a global brand, was the first person held in the investigation into fraudulent bankruptcy, fraud, false accounting and market rigging.

Although Tanzi no longer heads Parmalat, his family’s holding company, La Coloniale, controls the group.

The scandal exploded this month when Parmalat, with 35,000 employees in about 30 countries, revealed a hole in its accounts that investigators said could exceed $12.5 billion.

Public prosecutors have named about 20 people in the fraud inquiry, including current and former employees of the group as well as unnamed outside auditors.

Parmalat was declared insolvent earlier Saturday, three days after the government rushed into effect an emergency decree shielding the industrial group, Italy’s eighth-largest, from creditors while a new administrator drafts a restructuring plan.

A bankruptcy court in Parma ruled that Parmalat’s main operating arm was insolvent, which allowed the global group to continue operations while restructuring and sorting out debts, judicial sources said.

Parmalat says it has $7.5 billion of debt on its books, but some analysts say the figure could be higher.

“We are working, I hope for the best. We will see if it turns out this way,” Parmalat’s new administrator, Enrico Bondi, told reporters Saturday.

Investigators said people who had been questioned told of a complex web of offshore shell companies, overseen by senior executives, that hid company losses for more than a decade.

U.S. auditor Grant Thornton has rejected allegations that Parmalat had falsified accounts at one of its units at the heart of the investigation.

Bank of America has filed a criminal suit over the Parmalat case.

Judicial sources said investigators were probing whether Parmalat funds had been misappropriated by the Tanzi family. Authorities recently sealed off La Coloniale.

Bondi is keen to keep Parmalat, one of the world’s biggest producers of long-life milk, afloat.

He has six months to present a restructuring plan that sources said would take into account all creditors’ interests.

If that plan is rejected by the government, the company would be allowed to collapse and its assets would be sold off.