In a widening fraud scandal that is being called "Europe’s Enron," two executives at Grant Thornton’s Italian unit have been arrested for their involvement with the now-bankrupt Parmalat.
The executives arrested Wednesday are Lorenzo Penca, chairman of the Italian branch Grant Thornton SpA, and Maurizio Bianchi, a partner in the firm's Milan office. Penca promptly resigned, while Grant Thornton International suspended Bianchi.
According to a copy of the arrest warrants obtained by the Wall Street Journal, the men are accused of helping Parmalat executives "falsify the balance sheet" of a subsidiary and then "falsely certify" the financial statement.
The accountants are among a total of seven men arrested last week in connection with the multi-billion-euro fraud. All are being held in jail in Italy. Parmalat founder and former chief executive Calisto Tanzi, who was arrested previously, has admitted to diverting $627 million to aid his family’s ailing tourism businesses, his lawyer said.
Meanwhile, investigators on Friday searched the New York office of an attorney for the food giant, revealing documents "useful" to the probe, the Wall Street Journal reported. The lawyer, Gianpaolo Zini, has been detained in Milan in connection with the company's collapse.
In addition, the Securities and Exchange Commission has filed a civil lawsuit against Parmalat in the U.S., accusing it of committing "one of the largest and most brazen corporate financial frauds in history."
Developments over the last several days have brought unwanted attention to Grant Thornton, but the U.S. member firm of the worldwide organization was quick to distance itself from the matter.
Edward Nusbaum, chief executive of Grant Thornton LLP, the American branch, said Friday that the U.S. member firm has "no financial, legal or regulatory exposure" to the scandal. The firm is structured so that member firms are independent, and don’t share liability or profits. "Still," Nusbaum said, "our clients, like everyone else, what to know what’s going on."
Observers say that Grant Thornton’s Italian operation isn’t big enough to bring down the entire company, as in the collapse of Arthur Andersen LLP. In Andersen’s case, the firm’s inability to work in the U.S. after its criminal conviction in the Enron case dealt the fatal blow to all its worldwide affiliates.
"I doubt the consequences for Grant Thornton will be so severe," said Chris Higson, an accounting professor at the London Business School. "Losing Italy would be a hole, but you've only lost a branch. It's not the main trunk of this enterprise."
If the executives are exonerated, Grant Thornton may still be tarnished because the firm verified that Bank of America held 3.95 billion euros for Parmalat’s Cayman-Islands finance company Bonlat, but the document was an obvious forgery, prosecutors say.
Grant Thornton SpA served as Parmalat's chief auditor from 1990 to 1999, when it was replaced by Deloitte & Touche SpA. Grant Thornton stayed on to review the books of Bonlat. Grant Thornton International’s own investigation into the matter continues.