Citigroup Defeats Parmalat, Wins $364 Million Verdict

Citigroup Defeats Parmalat, Wins $364 Million Verdict

Oct. 21 (Bloomberg) -- Citigroup Inc., beating a lawsuit seeking $1.92 billion in damages, didn't help corrupt executives at Parmalat SA loot the Italian dairy company before it collapsed in 2003, a New Jersey state court jury ruled.

Lawyers for Parmalat Chief Executive Officer Enrico Bondi failed to prove the bank aided in thefts that helped bankrupt the company, jurors ruled in Hackensack, New Jersey yesterday. Jurors ordered Parmalat to pay $364.2 million in damages to New York-based Citigroup and found the food company committed fraud, negligent misrepresentation and conversion, also known as theft.

Parmalat, which would pay damages by issuing stock, plunged as much as 20 percent in Milan trading today. Its lawyers argued Citigroup was willfully blind to looting by ex-CEO Calisto Tanzi and former finance chief Fausto Tonna, who are on trial in Italy for fraudulent bankruptcy. Lawyers for Citigroup, a banker for Parmalat from 1994 to 2003, said its employees didn't know about the looting and its reasonable safeguards were thwarted.

``Investors were expecting Parmalat to win,'' said Alessandro Frigerio, a fund manager at RMJ Sgr in Milan, which oversees about 100 million euros, including Parmalat shares. He said analysts had estimated that the Italian company would reap about 500 million euros ($662 million) in damages.

Parmalat went bankrupt after revealing that a 3.95 billion- euro ($5.34 billion) account at Bank of America Corp. didn't exist and documents certifying the account were falsified. Parmalat emerged from bankruptcy and returned to the stock market in 2005 after a two-year reorganization under Bondi.

Stock Plunge

``Tonna and Tanzi committed a massive fraud not just on Citi, they committed it on all sorts of people, and they got away with it,'' Citigroup attorney Theodore Wells said in closing arguments last week. ``They got away with it because what they did was brazen and unprecedented.''

Parmalat stock was down 25 cents, or 16 percent, to 1.34 euros at 10:54 a.m. in Milan, the steepest slide since it was readmitted to trading in October, 2005. The stock reached 3.30 euros in 2007, attracting hedge-fund investors seeking windfall dividend payments from damages related to Bondi's legal actions against banks.

The stock is down 47 percent since the beginning of the year as cash-strapped consumers switch away from more expensive branded foods. Parmalat's market capitalization is about 2.2 billion euros.

Before collecting the damages, Citigroup must present the judgment to a bankruptcy court in Parma, Italy, a Parmalat spokeswoman said yesterday. If the judgment is authorized in that court, Citigroup would likely receive about 18.8 million Parmalat shares, the spokeswoman said.

`Convincing Argument'

The jury found by a 6-1 margin that Citigroup didn't aid and abet a breach of fiduciary duty. It agreed by the same margin on Citigroup counterclaims that Parmalat engaged in fraud, negligent misrepresentation and conversion. Jurors deliberated for three days before returning a verdict in a trial that began May 15.

``The fact that neither Citi nor its employees did anything wrong was the most convincing argument,'' Wells said yesterday in an interview after the verdict. ``Not one single fact witness testified that Citi or its employees did anything wrong.''

Bondi intends to appeal, attorney Kenneth Chiate said.

``The jury did what they're supposed to do,'' Chiate said. ``Citi probably believes that the jury came to the right verdict. Parmalat does not believe it was the right verdict.''

4th-Biggest 2008 Award

Jurors awarded $364.2 million each of the first two claims and $210.2 million on the conversion claim. The judgment was capped at $364.2 million. It's the fifth-largest verdict in the U.S. so far in 2008, according to data compiled by Bloomberg.

The juror who voted against Citigroup, Lisa Mansolillo Dalie, said that while she disagreed with the other six, all took the job seriously and reached honest conclusions.

``I obviously absorbed the evidence in a completely different way than the majority of others,'' said Dalie, 48, a graphic artist. ``I did believe that Citigroup was involved.''

Bondi's lawyers, she said, ``had a strong circumstantial case. The e-mails and some of the testimony led me to certain opinions that were bolstered by plaintiffs' experts.''

Jurors ``all really gave it careful consideration,'' said Dalie, who broke her foot during the trial.

`Thought Things Through'

``I don't think anybody rushed to judgment here,'' she said. ``Nobody made their decision based on just wanting to get out of the jury room or ending this case. Everybody really thought things through and came to the verdict they truly believed in.''

Parmalat has negotiated settlements with banks and auditors that worked for the company during the time of the fraud.

At the trial, Bondi attorney Steven Madison argued that Citigroup ``turned a blind eye to a massive fraud and looting. Without the assistance of Citibank providing that cash and assistance on false financial statements, the whole house of cards would have come down much sooner.''

In his closing argument to the jury, Wells said, ``Citi was mugged. It's like somebody robbed you, put a gun, took your money and then somebody later on criticized you. `Oh, you should have done some jujitsu and beat the robber up. It's your fault you got robbed.' It's an insanity.''

Citigroup succeeded in limiting the scope of the case before the trial began. Superior Court Judge Jonathan Harris agreed in April to dismiss Bondi's claims of fraud, conspiracy, racketeering and unjust enrichment.

Enron Comparison

At the trial, Citigroup lawyer John Baughman said Bondi's lawyers repeatedly strained during 50 days of trial testimony to tie the Parmalat fraud to the collapse of Enron Corp. in 2001.

``They don't give you evidence, they just give you buzzwords over and over and over again,'' Baughman told the jury. ``They're treating you like children. They think you're not going to use your critical thinking.''

Citigroup is ``delighted the jury has vindicated our position,'' said Andrea Hurst, a spokeswoman.

``We have said from the beginning of this case that we have done nothing wrong. Citi was the largest victim of the Parmalat fraud and not part of it,'' the company said in a statement.

The case is Bondi v. Citigroup, BER-L-10902-04, New Jersey Superior Court (Hackensack).

BLOOMBERG