Police arrest seven as Parmalat seeks funds

Italian police arrested seven people yesterday suspected of fraud at food firm Parmalat, dramatically widening the investigation into one of the world's largest corporate scandals.

Among those picked up were two former Parmalat chief financial officers and the chairman of the Italian affiliate of global auditor Grant Thornton, judicial sources said.

Parmalat, under the direction of turnaround expert Enrico Bondi since a multi-billion-euro financial crisis erupted at the firm two weeks ago, will ask banks for fresh loans next month to keep its business going, a source close to the matter said.

Italian newspapers have said Italy's biggest food firm, known globally for its long-life cartons of milk, might seek €100 million from banks to keep running after it was declared insolvent over the weekend.

Parmalat's founder and former chairman, Calisto Tanzi, was detained on Saturday and questioned for three days as prosecutors tried to sort out what US regulators have called one of the "most brazen corporate financial frauds in history".

Mr Tanzi, who built Parmalat into a global food conglomerate employing 35,000 people, told prosecutors there was an eight billion euro hole in Parmalat's books, largely in the form of fraudulent bank accounts with non-existent cash.

He has also admitted to diverting some €500 million from the publicly listed company into firms owned by his family. "He knew nothing about finances. He is an entrepreneur. There are many things that he knew nothing about," his lawyer Fabio Belloni said yesterday.

An official from the US Securities and Exchange Commission, which wants heavy fines levied on the company for misleading investors, met Italian prosecutors in Milan yesterday.

Parmalat's shares, now virtually worthless, have been suspended from trading, while its bonds - many in the hands of small investors - are worth less than one-fifth their face value.

"We realise that there are savers and shareholders who have seen their money go up in smoke, that have seen their work go up in smoke, seen everything go up in smoke," said lawyer Belloni.

Investigators from Parma, near Parmalat's headquarters in northern Italy, issued nine arrest warrants yesterday, including a fresh one for Mr Tanzi, who was already under arrest by Milan prosecutors in the financial capital's San Vittore jail.

Those seized yesterday included former Parmalat financial chiefs Fausto Tonna and Luciano Del Soldato, Mr Tanzi's lawyer Gianpaolo Zini and two executives at auditor Grant Thornton SpA: Chairman Lorenzo Penca and partner Maurizio Bianchi.

Only one of the nine suspects remains at large: the head of Parmalat's Venezuelan unit, Giovanni Bonici, who is abroad.

No charges have been filed in the case. Italy's Grant Thornton SpA, which audited subsidiaries of the Parmalat group, including a Cayman Islands unit at the centre of the scandal, said Penca had resigned.