UBS to face trial over Parmalat collapse

Despite its collapse in 2003, Parmalat is still a major milk supplier worldwide Reuters

Swiss bank UBS and three other financial groups are to face charges in an Italian court over the 2003 collapse of the Parmalat dairy empire.

Judge Cesare Tacconi on Wednesday issued indictments against the four international banks for market-rigging, at the end of preliminary hearings in the case.

Citigroup, Deutsche Bank and Morgan Stanley are accused alongside UBS.

The judge ordered that 13 bank employees should stand trial on the same charges. The trial is set to begin on January 22, 2008.

The case is one of several trying to assign responsibility for the collapse of the dairy company under €14 billion (SFr23.15 billion) of debt in what remains Europe’s largest corporate bankruptcy. Parmalat was restructured and re-listed on the Milan stock exchange in 2005.

Prosecutors sought charges after discovering the company had never earned a profit since its stock market listing in 1992, though it reported earnings every year.

Magistrates claim that the banks knew about Parmalat’s shaky finances when they carried out transactions, including bond sales on its behalf, helping the company hide its true position from investors. Each charge of market manipulation can carry a prison term of five years.

“Vigorous defence”

Switzerland’s largest bank pledged a “vigorous defence” and said it had no proof that its employees behaved fraudulently or were aware “of the true state of Parmalat’s finances”.

“UBS remains of the view that the transaction in which it was involved was a valid transaction which did not involve any behaviour on its part or on the part of its employees which can be characterized as a participation in a market manipulation crime,” it said in a statement.

Morgan Stanley, Citigroup and Deutsche Bank also defended themselves against wrongdoing.

Non-Italian banks underwrote more than 80 per cent of the €7.5 billion of bonds and private placements sold by the company after 1990.

Prosecutor Francesco Greco welcomed the decision, saying it was good news for savers who could be compensated soon even if they were out-of-court settlements.

“It is the first time that there will be a trial of the banks accused of having manipulated the market. It will be a very difficult trial,” he said.

More than 40,000 bondholders have joined the Milan case as civil parties – a move that allows them to seek damages on top of the provision for restitution contained in the charge against the banks themselves.

swissinfo with agencies

Parmalat trials

In Parmalat’s hometown of Parma, a court has been hearing preliminary evidence for nearly a year in proceedings to decide charges against more than 60 former executives, financial advisers and bankers.

That case is considered the most important because it alleges fraudulent bankruptcy and, in some cases, criminal association, and carries the highest penalties: up to 15 years in prison.

In another trial in Milan, Parmalat founder Calisto Tanzi and 15 others, including external auditors, face charges of market rigging, providing false accounting information and misleading Italy’s stock market regulator, in a trial that opened in September 2005. They could be sentenced to up to five years in jail.