Parmalat Finanziaria SpA has gone to court seeking damages from Citigroup Inc., which allegedly played "an integral part" in the Italian dairy giant’s collapse.
The suit was filed Thursday in Bergen County Superior Court in New Jersey by Parmalat Chairman Enrico Bondi, who is trying to salvage the company from the billions in losses it sufffered in a massive fraud scandal.
According to Bloomberg News, the complaint states that Citigroup structured the company’s financing so that debt was hidden and cash flow was falsely inflated. The food group also claims that Citigroup helped launder "hundreds of millions of dollars" of "misappropriated" money through its accounts.
"Citigroup's transactions with Parmalat were knowingly designed to assist Parmalat in a broad, continuing series of fraudulent transactions," according to the complaint. Parmalat’s Farmland Dairies unit is based in Wallington, N.J. "Citigroup also knew that Parmalat's true financial condition was not being disclosed to the public.''
Lenders up to now have contended that they were misled about Parmalat’s finances. If the company is successful in recovering damages, the proceeds will be distributed to future shareholders.
"While there is little to no likelihood of Parmalat's prevailing, the company is trying to find a pool of capital so it can pay off its shareholders,'' said Richard Bove, an analyst at Hoefer & Arnett Inc. in Pinellas Park, Florida, who rates the shares a `neutral' and doesn't own the stock. "What's a better place for capital than Citigroup?''
Citigroup said in May that it would set aside $4.95 billion as reserves for legal costs.
"We have not had an opportunity to review the lawsuit and are unable to comment on it," Citigroup spokeswoman Christina Pretto told Bloomberg. "However, Citigroup lost hundreds of millions of dollars as a result of Parmalat's fraudulent conduct, and we will continue to pursue our substantial claims against the company and defend against frivolous claims in search of a deep pocket."
Parmalat collapsed in December after disclosing that a $4.7 billion account with Bank of America Corp. didn't exist.
Parmalat settled with the Securities and Exchange Commission Wednesday, agreeing to make corporate reforms. The settlement did not include a fine.