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Bankofamerica rigged finances italian dairy group { March 17 2004 }

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Ex-BofA staff set to face charges
By Fred Kapner in Milan
Published: March 17 2004 19:45 | Last Updated: March 17 2004 19:45

Bank of America and former bank executives are likely to be charged soon by Italian prosecutors with market rigging for its intricate role in the finances of Parmalat, the bankrupt Italian dairy group, people familiar with the probe said.

BofA helped set up two special-purpose offshore vehicles in 1999 that raised $300m from US investors in order for the offshore vehicles to acquire 18 per cent of Parmalat's wholly owned Parmalat Brasil Industria de Alimentos.

The highly publicised deal artificially boosted Parmalat's stock, according to creditors, investigators and accountants, since Parmalat Brasil was thus valued at two-thirds the entire Italian dairy group's then market capitalisation of €2.4bn ($2.9bn).

Investigators say the SPV set-up is legal but creates misleading financial records. The SPVs helped keep debt off the balance sheet of both the dairy group and the bank, and did not require auditors to verify the fair value of the Brazilian investment.

At the time of the transaction, according to the testimony of a former Parmalat chief financial officer, Parmalat Brasil was losing more than €250m a year, although it reported profits.

As a result, three former BofA managers in Italy are expected to be among about 30 people Milan prosecutors plan to charge today or tomorrow with rigging the market price of Parmalat and helping to falsify Parmalat's accounts. All three were interrogated on Wednesday.

The bank itself could be charged on similar grounds in coming weeks, people involved in the investigation said, and numerous other bank employees could be grilled for their role in raising the $300m and in raising another $1.2bn for Parmalat through private placements. BofA declined to comment.

BofA is also among several lenders named as defendants in class-action suits filed in the US by Parmalat's creditors. The Brazilian transaction is a centrepiece of a suit filed by Milberg Weiss Bershad Hynes and Lerach, the law firm.

BofA helped establish the two SPVs late in 1999. BofA's US offices then placed $150m in notes with US investors for one of them and loaned $150m more for the other. In 2001, one person said, BofA then sold another $150m in notes to replace that loan.

BofA also paid the interest on the notes through an interest rate swap, people familiar with the transaction said. However, a person close to BofA said that was not the case.

Investigators said Parmalat took the $300m raised by BofA and, instead of putting it into Parmalat Brasil as announced, sent the money to Wishaw Trading, a Uruguay-registered company owned by Parmalat. Wishaw is now under investigation for possible money-laundering.





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