...Financial Scandals and the Role of Private Enforcement: The Parmalat Case Law Working Paper N° 40/2005 May 2005 Guido Ferrarini University of Genoa, Centre for Law and Finance and ECGI Paolo Giudici Free University of Bozen and Centre for Law and Finance © Guido Ferrarini and Paolo Giudici 2005. All rights reserved. Short sections of text, not to exceed two paragraphs, may be quoted without explicit permission provided that full credit, including © notice, is given to the source. This paper can be downloaded without charge from: http://ssrn.com/abstract=730403 www.ecgi.org/wp ECGI Working Paper Series in Law Financial Scandals and the Role of Private Enforcement: The Parmalat Case Working Paper N° 40/2005 May 2005 Guido Ferrarini Paolo Giudici This Working Paper is based upon a draft prepared for the EU Corporate Law Making Conference (Cambridge, October 29-30, 2004) organized by Harvard Law School and the Swiss Federal Institute of Technology (ETH Zurich). The authors are grateful to Gerard Hertig, Mark Roe, Donald Langevoort, and other conference participants for helpful comments. Drafts of this paper were also presented at the Yale Law School Alumni Meeting on October 8-10, 2004; at a meeting of the Associazione Via Isonzo held in Milan on October 10, 2004; and at a seminar at the Institute of Law and Finance (ILF), University of Frankfurt, on January 18, 2005. The authors are grateful to Theodore Baums, Andreas Cahn, Carmine Di Noia, Jon Macey,...
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...many causes behind it; one of them being is financial scandals. The financial scandals are making false or incorrect attempts with the financial records of company for benefit or hiding scams. Auditing failure was another reason behind general crisis, auditing failures occurs when auditor declares that a company’s financial statements are true and fair but comprises many frauds or disclosed information. This eventually resulted in questioning of auditors role in providing true and fair view of financial records around the world. The motive behind writing this essay is to gain more information and knowledge about Auditing as whole. In this essay we are going to discuss issues relating to financial scandals caused general crisis of confidence in the integrity of the whole system of corporate accountability, classifying auditors role and the efficiency of the auditing process, Also selecting a company for example Parmalat, analyzing and discussing the issues that challenged the credibility of audit reports issued by auditing firms like Grant thorton and Deloitte & Touche. In December 2003, The parmalat was involved in a giant accounting fraud of worth more than $10 billion. The SEC states that the Parmalat scandal was one of the brazen and major financial frauds in the history. In eightees Parmalat became popular in dairy markets and expanded its operation in other food markets as well. In 2001, the first report of Parmalat stated that out of their thirteen directors only four...
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...Table of Contents Parmalat: what went wrong ........................................................................................................................ 1 Story of Parmalat ..................................................................................................................................... 1 Parmalat bankruptcy brief timeline ......................................................... Error! Bookmark not defined. Responsible parties ......................................................................................... Error! Bookmark not defined. Calisto Tanzi, top managers ...................................................................... Error! Bookmark not defined. Gian Paolo Zini........................................................................................... Error! Bookmark not defined. Grant Thornton SpAMaurizio Bianchi and Lorenzo Penca....................... Error! Bookmark not defined. Banks and other board members. ............................................................ Error! Bookmark not defined. Parmalat board members ......................................................................... Error! Bookmark not defined. What to do to avoid financial crisis in an organization................................ Error! Bookmark not defined. Corporate Governance .............................................................................. Error! Bookmark not defined. The control structure.....................................
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...ABCD COSO case study Case study – Parmalat The situation - - - - - - - - Parmalat is a multinational Italian dairy and food corporation The company was founded by Calisto Tanzi, a university dropout who transformed a family business, Calisto Tanzi & Sons - Salamis and Preserves into an organisation hailed as one of Europe's biggest corporate success stories. In 1997 Parmalat jumped into the world financial markets in a big way, financing several international acquisitions with debt. By 2001, many of the new divisions were producing losses , and the company financing shifted largely to the use of derivatives. Parmalat had determined that their company wide objectives was to become the leading global company in production of UHT, however, a risk assessment of financing several international acquisitions with debt and derivatives was not performed. There was also a concern that the managers who were making the accounting decisions, were also posting the journals to the general ledger. Furthermore, they were reviewing and signing off on the reconciliations and reporting In February 2003, CFO Fausto Tonna unexpectedly announced a new €500 million bond issue. This came as a surprise both to the markets and to the CEO, Calisto Tanzi. Tanzi fired Tonna and replaced him as CFO with Alberto Ferraris. Ferraris was surprised to discover that, though now CFO, he still didn't have access to some of the corporate books, which were being handled...
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...Something went sour at Parmalat The Italian dairy food corporation Parmalat SpA was founded by Calisto Tanzi in 1961 and grew to a global company. It had about 140 production centers, 36,000 employees and 5,000 contracted dairy farms (https://en.wikipedia.org/wiki/Parmalat). The dairy food giant defaulted on debt in November 2002 and filed bankruptcy in December 2003. It sounds ridiculous because Parmalat’s subsidiary in Cayman Islands had a $4.9 billion cash balance in Bank of America account. However, this account was falsified. Meanwhile, Parmalat also hid losses of $10 billion and increasing assets as high as $19 billion. The auditors did not show enough professional skeptism and due care during the audit. 1. What steps does an auditor ordinarily take when confirming cash balances held on deposits with financial institutions? The auditors usually require a confirmation letter from the financial institution to check if the account balance of bank agrees with the numbers on the company’s books. Auditing standards require direct communication that mailing the confirmation letter to the bank be sent by the audit firm and responded directly to the firm in case of any change by client. The confirmation letter also should be received by mail with post stamp and original documents rather than the facsimile in the case. If auditors believe the company’s internal control is not strong enough, they may: (1) trace the accounts to see whether the transactions are properly...
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...Running Head: THE BRAZILIAN MILK FRAUD SCANDAL 1 The Brazilian Milk Fraud Scandal Involving the Italian Food Conglomerate Parmalat. A Brief Case Study on a Transnational Corporation In Your Home Country Gabriel Ferreira International Public Relations – PUR6608 class University of Florida THE BRAZILIAN MILK FRAUD SCANDAL 2 The Brazilian Dairy Market background. Over the last decade, the Brazilian dairy market has been one of the most fast growing dairy markets in the world. In the early 90s, the Brazilian agro-industrial milk sector suffered three very important changes: it starting being an open economic market for international competitors; at the time inflation was decreasing; and so milk prices drop significantly. All of these changes would not have been possible without the implementation of the Real Plan in 1994 (the new Brazilian coin plan until today) that strengthened investments in the country, especially in the milk-producing sector. These investments also lead to an increase in population number and to changes in alimentary habits (Nahmias, 2008). By becoming such a lucrative sector, the milk and dairy product sector in Brazil became the target for food adulteration processes. Its high-value role in feeding specific groups inside the population, such as children’s, women and elders, and regarding the expensive undergoing steps to achieve a final product that could be sold in the market, was some of the key aspects that attracted...
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...that there were actually more cons than pros. * * As mentioned in the report LIBOR has been the catalyst for fraud and unfair play in the past years. This being said I cannot see this reform in LIBOR go the right way for either party. The FED might have already lost the trust of many people around the world with the scandals of late that have taken place. Many people were hurt when they took out loans and LIBOR was artificially high. However, when LIBOR was artificially low people paid less than they should have. This is a small example on the controversy of whether or not LIBOR should be reformed or completely thrown out the window. * * LIBOR is a very important index, which serves as a benchmark for derivatives. Being the most widely used interested rate in the world, it is not easy to just throw it out the window, as many people who were on the brunt of the scandal would wish. * * I believe that LIBOR is not as risk-free as we think it is. I believe that the scandals that were taken place proved that. Many people lost their savings and not only were the savings lost, but the banks that were the cause of the scandal were stealing it. This, I believe speaks for itself to answer the question if LIBOR is as risk-free as we think it is. I believe we were led to believe that is was a fixed fair rate, however we have seen that it can be manipulated and artificially fixed in ways in which we can lose our money. This is a big reason why I believe...
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...Research Study INTRODUCTION Accounting scandals in business firms arise with the disclosure of financial misdeeds by trusted executives of corporations. Examples of Accounting Fraud: • Merging short and long term debt into one amount to improve the perceived liquidity of the company • Failing to disclose risky investments or “creative” accounting practices • Over-recording sales revenue • Under-recording expenses (i.e. depreciation expense) Accounting fraud leads to many serious problem for everyone not only for the perpetrator. Accounting fraud causes problem in the market place and the economy. As a result in most cases, investors' loose large sum of money due to the misrepresentation of financial position and financial result of the company. Also, because of this, there is lack of trust in the market, accounting system, and in the company in which accounting fraud was committed from the investors. Employees in that company are at rest of losing their job because of the scandal. WHY DOES ACCOUNTING FRAUD OCCUR? Fraud are triggered by three elements; rationalization, perceived pressure, and perceived opportunities. Whether the fraud benefits the perpetrator directly, or indirectly, such as benefiting the perpetrator’s company, the three elements are always present. Rationalization- perpetrators find some sort of rationalization that makes their unethical behavior seem acceptable. Perceived Pressure- perpetrators are faced with some kind of pressure...
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...Baluyot, Krishia Mae E. BSAV-2A Scandals that Rocked the Accounting World ❖ Enron Scandal The Enron Corporation led to bankruptcy Last October 2001. It is an American energy company based in Huston, Texas, and the termination of Arthur Andersen, which was one of the biggest audit and accountancy partnerships in the world. Enron is also attributed as the biggest audit failure. Enron was founded in 1985 by Kenneth Lay after merging Houston Natural Gas and Inter North several years later. When Jeffrey Skilling was hired, he developed a staff of executive that, with the use of accounting loopholes special purpose entries, and poor financing reporting, were able to hide billions in debt from failed deals and projects. Shareholders lost nearly $11 billion when Enron's stock price, which hit a high of US$90 per share in mid-2000, plummeted to less than $1 by the end of November 2001. The U.S. Securities and Exchange Commission (SEC) began an investigation, and rival Houston competitor Dynegy offered to purchase the company at a fire sale price. The deal fell through, and on December 2, 2001, Enron filed for bankruptcy under Chapter 11 of the United States Bankruptcy Code. Enron's $63.4 billion in assets made it the largest corporate bankruptcy in U.S. history until WorldCom's bankruptcy the following year. Many executives at Enron were indicted for a variety of charges and were later sentenced to prison. Enron's auditor, Arthur Andersen, was found guilty...
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...scandalous and creates wide seethe and uproar from the public who are the ultimate victims of these scandals. For many reformers and speakers it may take ages to bring a matter of public concern in front of people, which when scandalized became notoriously famous without any help. For example wiki leaks had generated mass curiosity around the world about the facts and events which were otherwise completely obscure and esoteric to general public. With increased freedom of the forth estate everything is out in the open ,all political scandals ,social scandals and even financial scandals are watched ,scrutinized and are brought to justice. In the 21st centaury where social networking has dissolved all the known physical boundaries, a scandal of one country is a popular talk of another continent, people discuss ,debate and provide solution to the problem which arose because of the so called scandal, which we can never imagine happening half a century ago. The Bernie Madoffs in famous embezzlement scandal has created waves of dissatisfaction among the masses, and demanded higher level of probe and investigation in the matter. The Italian prime minister’s sex scandal has stumped the world and raised questions about the moral conduct about the leader. No reformer or speakers could have generated such wide spread awareness about a issue or a problem within the society .Thus scandals play a major roles in generating general awareness and finding root cause for a problem ,which...
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...Draft - Corporate Governance Considerations This material was prepared by Eliot H. Sherman – July 2005 FOCUS Learning Objectives By the end of this chapter, you should be able to: Understand the issues related to agency and delegated responsibility. Describe the similarities and the differences in the corporate scandals that have been identified in the past few years Identify the responsibilities of managers to the shareholders and other stakeholders associated with their corporations. OVERVIEW Corporate governance is not a new topic. It has been around for many years, often described as the “agency issue.” However, in recent years it has taken on increased significance, demanding increased attention. Since 2001, in particular, the corporate marketplace has seen a significant number of headline grabbing scandals involving major corporations. These scandals have raised new questions about corporate governance and, as a direct consequence of some of these situations, the U.S. Congress passed a very broad piece of legislation called the Sarbanes-Oxley Act of 2002. This law has had a wide range of consequences directly affecting large public corporations and public accounting firms and, less specifically, smaller public firms, private corporations, not-forprofit organizations and regulatory entities in many different ways. This law mandates some specific actions for large public corporations, many of these actions being required shortly after the legislation passed and others in...
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...Mr. May APLAC December 16 2012 Jack Abramoff Corruption in governments inspires frantic media coverage and people to lose faith in politics. The United States has a long history of these scandals that has initiated some concern about the way the government is run. Jack Abramoff, a once powerful lobbyist, was recently involved in one of the largest scandals in Washington. Abramoff rose from, generally, nothing to becoming America’s most notorious lobbyist. When scandal ultimately cast him down, Abramoff was sentenced to four years in federal prison for fraud, tax evasion, and conspiracy. While serving his term in jail, he had received vile and harsh insults that depicted him as “scum” and “evil.” Now released from the penitentiary, Abramoff is the author of the novel Capitol Punishment. By writing this book, he tries to expose the truth about the broken the U.S. Government system really is but also justify his actions and hope to redeem little pieces of his honor. Using clever diction, syntax, and numerous appeals to pathos, Jack Abramoff attempts to repent for his actions and gain redemption. Abramoff’s diction allows for the audience to view his actions in an alternative more positive direction, rather than maliciously and with anger. The first few chapters of the book describe his childhood and formative years. His conservative principles and his calculating self brought him early spotlight and success in the political realm. Abramoff, for about the first half of his...
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..."The whole is truly beyond all limits....In every company we have found forgeries and falsifications of all sorts. But in this case we are really beyond the limits of the imagination." Parmalat Finanziara, the Italian dairy and food giant, is fast joining Enron and WorldCom as a household name for corporate scandal. The alleged financial fraud at Parmalat spans more than a decade and involves sums whose estimates have ballooned from EUR 4 billion to more than EUR 8 billion. Founder, chairman, and chief executive Calisto Tanzi has been ousted from the company and board and is under arrest. Enrico Bondi, who replaced Tanzi in December, has been given new authority to act as sole administrator of Parmalat. He has 180 days to save what he can of the company. While Bondi races against time to unearth the sources of the scandal, some corporate governance experts are already drawing lessons. The Corporate Governance Significance "Clearly what has happened in Parmalat, and Ahold a few months ago, indicates that boards -- when they are not truly independent, when they're not truly vigilant -- risk what I'd call laxity of compliance mechanisms to catch fraud," Peter Clapman, Senior Vice President and Chief Counsel of TIAA-CREF, told the Friday Report. He emphasized that the latest scandal exposes a global problem, not a uniquely Italian one. Clapman urged every country to undertake...
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...leave room for interpretations and the standards never change, which give the impression that there cannot be many, if any, grey area’s which would allow for human judgment to take place. Actually nothing can be further from the truth and as I grew within the army I began to see a natural competition and even a division among the different services in the areas of moral and ethical standards, although all of us fight the same fight there is still a recruiting battle that exist to find, sign and train the best people possible from the civilian ranks and anytime you have that element ,it will cause potential members to “choose sides”. Each of our services has suffered through many different scandals over ethical dilemmas. The Navy in 1991 suffered the infamous “Tailhook Scandal” where Lt. Rebecca Hansen, a trainee helicopter pilot charged that her failing grades were in direct retaliation for her bringing charges against a flight instructor, and later when Gulf War Hero and then Vice Chief of Naval Operations, Admiral Stanley Arthur, ruled against her, she then reported the incident to Senator David Durenberger of Minnesota who in turn as the New York Times, Goodman, W. (1996) reported “blocked Commander Robert E. Strumpf’s appointment to the Commander of the Navy in the Pacific”, which is the largest operational...
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...risky investments or creative accounting practices. * Over-recording the sales revenue. * Under-recording expenses i.e. depreciation of expenses. From Enron, WorldCom and HealthSouth, it appears that accounting fraud is a major problem that is increasing in frequency and severity. research evidence has shown that a growing number of frauds have undermined the integrity of financial reports, contributed to substantial economic loses, and destroyed investors' confidence regarding the reliability of financial statements. The increasing rate of white-collar crimes demands stiff penalties and strong punishments. II. Introduction New laws and guidelines have helped reduce, but not eliminate fraud. Enron, WorldCom and HealthSouth scandals were detrimental to the public. Millions of dollars in investments the public made into those companies have been lost. The SEC (Securities and Exchange Commission) has taken a strong stance on fraud committed by...
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