WEBVTT 00:00:00.000 --> 00:00:01.659 I want you to picture something really specific. 00:00:02.620 --> 00:00:04.740 You're walking into your kitchen. It's early 00:00:04.740 --> 00:00:08.160 morning. Maybe the sun is just barely starting 00:00:08.160 --> 00:00:10.800 to creep through the blinds. The house is quiet. 00:00:11.060 --> 00:00:13.419 You open the fridge door. The light flickers 00:00:13.419 --> 00:00:15.820 on with that familiar hum. And you reach for 00:00:15.820 --> 00:00:18.679 the most innocent, wholesome thing on the shelf. 00:00:19.560 --> 00:00:22.460 A carton of milk. Or maybe a jug of orange juice. 00:00:22.480 --> 00:00:24.940 Exactly. It's a staple. It's breakfast. It's 00:00:24.940 --> 00:00:27.920 safety. It's the absolute definition of a commodity. 00:00:28.100 --> 00:00:31.039 It is essential. It is, you know, reliable. And 00:00:31.039 --> 00:00:33.240 it is in practically every household in the world. 00:00:33.500 --> 00:00:35.600 You don't think about milk. You just drink it. 00:00:35.659 --> 00:00:37.740 You don't question the milk. No. What if I told 00:00:37.740 --> 00:00:40.460 you that behind that carton of milk, behind that 00:00:40.460 --> 00:00:43.399 innocent breakfast ritual, lay one of the most 00:00:43.399 --> 00:00:47.030 sophisticated, massive, and... frankly, shocking 00:00:47.030 --> 00:00:49.329 financial crimes in European history. It sounds 00:00:49.329 --> 00:00:51.229 like the plot of a thriller novel, doesn't it? 00:00:51.250 --> 00:00:53.689 But this was very, very real. We aren't talking 00:00:53.689 --> 00:00:55.890 about a small accounting error or, you know, 00:00:55.890 --> 00:00:59.109 a CEO fudging his expense report. We are talking 00:00:59.109 --> 00:01:02.109 about a black hole of debt so massive it effectively 00:01:02.109 --> 00:01:05.409 swallowed a global empire. We are talking about 00:01:05.409 --> 00:01:08.250 Parmalat. And if you're a fan of Formula One 00:01:08.250 --> 00:01:11.310 or European soccer or just Italian culture in 00:01:11.310 --> 00:01:14.609 general, that name probably rings a bell. It 00:01:14.609 --> 00:01:17.349 should. At its peak, this company was a titan. 00:01:17.430 --> 00:01:19.950 They were sponsoring world champions. They employed 00:01:19.950 --> 00:01:23.329 tens of thousands of people. They were, for all 00:01:23.329 --> 00:01:26.090 intents and purposes, the absolute pride of Italy. 00:01:26.310 --> 00:01:28.909 And yet beneath that shiny, wholesome surface, 00:01:28.989 --> 00:01:31.769 there was a hole, a financial void of roughly 00:01:31.769 --> 00:01:35.269 14 billion euros. Which is about 20 billion dollars 00:01:35.269 --> 00:01:38.010 at the time. 20 billion dollars just gone, poof, 00:01:38.109 --> 00:01:40.430 vanished into the ether. And it wasn't just a 00:01:40.430 --> 00:01:43.129 case of bad business. This was forgery on an 00:01:43.129 --> 00:01:46.219 industrial scale. It was hubris. It was a bankruptcy 00:01:46.219 --> 00:01:49.000 so catastrophic that the prime minister of Italy, 00:01:49.159 --> 00:01:52.120 Silvio Berlusconi, had to literally change the 00:01:52.120 --> 00:01:54.239 country's bankruptcy laws just to deal with the 00:01:54.239 --> 00:01:56.420 fallout. So that is our mission for this deep 00:01:56.420 --> 00:01:58.500 dive. We are going to turn into detectives today. 00:01:58.640 --> 00:02:00.859 I want to know how you hide billions of euros 00:02:00.859 --> 00:02:02.939 in debt while selling something as simple and 00:02:02.939 --> 00:02:05.400 tangible as milk. How do you fake 20 billion 00:02:05.400 --> 00:02:07.939 dollars? And from my perspective, I want to frame 00:02:07.939 --> 00:02:09.900 this as a lesson in corporate governance and 00:02:09.900 --> 00:02:14.560 that that. too -big -to -fail illusion. The goal 00:02:14.560 --> 00:02:17.319 is to understand how a simple family business 00:02:17.319 --> 00:02:21.199 grew into a monster and then just vanished into 00:02:21.199 --> 00:02:24.280 this intricate web of lies. We have a mountain 00:02:24.280 --> 00:02:26.639 of history to climb today based on historical 00:02:26.639 --> 00:02:29.240 accounts and business reports detailing the rise, 00:02:29.280 --> 00:02:32.300 the fall, and the very, very strange afterlife 00:02:32.300 --> 00:02:34.969 of this company. So grab your coffee. Or your 00:02:34.969 --> 00:02:37.530 glass of milk. And let's unpack this. Let's get 00:02:37.530 --> 00:02:39.270 into it. We have to start at the beginning because 00:02:39.270 --> 00:02:42.030 before the fraud, before the police raids, before 00:02:42.030 --> 00:02:45.050 the global headlines, there was just a 22 -year 00:02:45.050 --> 00:02:47.110 -old kid in Parma, Italy. That's right. We were 00:02:47.110 --> 00:02:50.560 going all the way back to 1961. The protagonist 00:02:50.560 --> 00:02:53.680 or maybe antagonist of our story is a man named 00:02:53.680 --> 00:02:56.599 Calisto Tanzi. Calisto Tanzi. Now, painting the 00:02:56.599 --> 00:02:59.319 picture here, 1961 Italy is in the middle of 00:02:59.319 --> 00:03:02.319 this huge economic boom, the Miracolo Economico, 00:03:02.479 --> 00:03:05.620 the Italian economic miracle. A period of incredible 00:03:05.620 --> 00:03:08.900 growth and optimism. Tanzi himself, he's a college 00:03:08.900 --> 00:03:11.560 dropout, isn't he? He is. He's 22 years old. 00:03:11.719 --> 00:03:14.500 And he opens a small pasteurization plant in 00:03:14.500 --> 00:03:17.689 Parma. Now, usually when we hear college dropout 00:03:17.689 --> 00:03:20.289 in these big business stories, we think of Silicon 00:03:20.289 --> 00:03:24.069 Valley tech geniuses in garages inventing the 00:03:24.069 --> 00:03:26.069 future. Right. We think of Steve Jobs or Bill 00:03:26.069 --> 00:03:29.030 Gates. Exactly. But this was the dairy business 00:03:29.030 --> 00:03:32.069 in provincial Italy. It wasn't exactly high tech. 00:03:32.169 --> 00:03:34.550 It was as traditional as you could get. But he 00:03:34.550 --> 00:03:36.990 did have a tech angle. He wasn't just bottling 00:03:36.990 --> 00:03:39.590 milk the old -fashioned way. He stumbled onto, 00:03:39.789 --> 00:03:42.569 or rather he fully embraced, a piece of technology 00:03:42.569 --> 00:03:46.469 that changed absolutely everything for him. UHT. 00:03:46.610 --> 00:03:48.870 Ultra High Temperature Processing. Okay, let's 00:03:48.870 --> 00:03:50.650 break this down because I think most people see 00:03:50.650 --> 00:03:53.349 UHT on a carton and just assume it means processed 00:03:53.349 --> 00:03:56.229 or not as good as fresh. Why was this specific 00:03:56.229 --> 00:03:58.449 technology such a game changer for a business 00:03:58.449 --> 00:04:01.120 model in the 60s? You have to think about the 00:04:01.120 --> 00:04:03.599 logistics of milk in the early 1960s. It's a 00:04:03.599 --> 00:04:05.860 biological ticking time bomb. Right. It goes 00:04:05.860 --> 00:04:09.020 bad fast. Incredibly quickly. It requires what's 00:04:09.020 --> 00:04:12.259 called a cold chain, refrigerated trucks, refrigerated 00:04:12.259 --> 00:04:15.020 warehouses, refrigerated shelves at the retailer. 00:04:15.360 --> 00:04:18.519 That is incredibly expensive. And more importantly, 00:04:18.699 --> 00:04:20.860 it limits how far you can ship your product. 00:04:21.019 --> 00:04:23.600 You have a geographic tether. So you're trapped 00:04:23.600 --> 00:04:26.139 in your local area. You can't ship fresh milk 00:04:26.139 --> 00:04:28.920 from Parma to, say, southern Italy or across 00:04:28.920 --> 00:04:30.620 the border to France without it turning into 00:04:30.620 --> 00:04:34.160 cheese or, you know, sour slush on the way. Precisely. 00:04:34.259 --> 00:04:38.399 You are fundamentally a local or at best a regional 00:04:38.399 --> 00:04:41.720 business. But UHT processing heats the milk to 00:04:41.720 --> 00:04:44.800 a very high temperature. About 135 degrees Celsius 00:04:44.800 --> 00:04:47.720 or 275 Fahrenheit for a very short time, just 00:04:47.720 --> 00:04:49.740 a couple of seconds. Okay. This kills all the 00:04:49.740 --> 00:04:52.319 bacteria and spores that cause spoilage. It makes 00:04:52.319 --> 00:04:54.600 the milk shelf stable. Long life milk. Suddenly, 00:04:54.680 --> 00:04:56.420 you don't need the fridge until you open the 00:04:56.420 --> 00:04:58.240 carton. So wait, this wasn't just about selling 00:04:58.240 --> 00:05:00.779 milk. This was solving a logistics problem. That's 00:05:00.779 --> 00:05:03.319 the key insight. It allowed for massive, massive 00:05:03.319 --> 00:05:06.279 scaling. It turned milk from a local perishable 00:05:06.279 --> 00:05:09.639 good into a global tradable commodity. You could 00:05:09.639 --> 00:05:12.449 produce milk in Parma. put it in a box, and ship 00:05:12.449 --> 00:05:14.209 it anywhere in the world on a regular truck. 00:05:15.290 --> 00:05:17.529 Tanzi wasn't just a local milkman anymore. He 00:05:17.529 --> 00:05:19.829 was an industrialist with a product that could 00:05:19.829 --> 00:05:22.009 travel. But what about the taste? I mean, that's 00:05:22.009 --> 00:05:24.189 the elephant in the room with UHT milk. A lot 00:05:24.189 --> 00:05:26.230 of people really don't like it. Well, the taste 00:05:26.230 --> 00:05:29.730 is... It's debatable for some palates accustomed 00:05:29.730 --> 00:05:32.290 to fresh milk. It definitely has a slightly cooked 00:05:32.290 --> 00:05:34.910 or caramelized flavor to it. Yeah. But you have 00:05:34.910 --> 00:05:36.730 to remember, in many parts of the world, especially 00:05:36.730 --> 00:05:38.750 where refrigeration was scarce or the climate 00:05:38.750 --> 00:05:41.910 was hot, this is a miracle product. It meant 00:05:41.910 --> 00:05:44.589 you could have safe, nutritious milk in the cupboard 00:05:44.589 --> 00:05:47.449 for months without needing a refrigerator. For 00:05:47.449 --> 00:05:50.329 millions of people, it was a revolution. And 00:05:50.329 --> 00:05:54.000 Tinsley rode that wave. This kicks off what we 00:05:54.000 --> 00:05:56.560 can really call the golden era of expansion for 00:05:56.560 --> 00:05:59.360 Parmalat. For two decades, they're just on an 00:05:59.360 --> 00:06:02.600 absolute tear. It was incredibly aggressive growth. 00:06:03.139 --> 00:06:05.740 And they didn't just tick to milk. They diversified 00:06:05.740 --> 00:06:07.480 very quickly. They realized they had this amazing 00:06:07.480 --> 00:06:09.899 distribution network. So why not sell the trucks 00:06:09.899 --> 00:06:11.860 with other things? Makes sense. Once you have 00:06:11.860 --> 00:06:14.019 the infrastructure, use it. What else were they 00:06:14.019 --> 00:06:16.279 selling? Well, the history of the company lists 00:06:16.279 --> 00:06:22.879 a whole pantry's worth of goods. biscuits and 00:06:22.879 --> 00:06:25.660 pastries, and of course what the official documents 00:06:25.660 --> 00:06:29.160 call milk derivatives. Which just sounds so incredibly 00:06:29.160 --> 00:06:31.399 unappetizing when you say it like that. Pass 00:06:31.399 --> 00:06:33.600 me the milk derivative, please. It just means 00:06:33.600 --> 00:06:36.279 things made from milk. Yogurt, cheese, ice cream, 00:06:36.339 --> 00:06:38.800 butter. They were building a full food portfolio. 00:06:39.139 --> 00:06:40.660 And they weren't just staying in Italy. They 00:06:40.660 --> 00:06:43.920 went global with this. Huge expansion. By 2002, 00:06:44.139 --> 00:06:45.899 looking back at this era, they were operating 00:06:45.899 --> 00:06:48.060 in 30 countries. They had 30 ,000 employees. 00:06:48.439 --> 00:06:51.899 This was a true multinational corporation. They 00:06:51.899 --> 00:06:55.600 were massive in Brazil, Venezuela, South Africa, 00:06:55.819 --> 00:06:58.459 Australia. But here is where it gets really interesting 00:06:58.459 --> 00:07:01.379 to me. Beyond just the business growth. It wasn't 00:07:01.379 --> 00:07:03.800 enough to just be big. They wanted to look big. 00:07:03.879 --> 00:07:05.939 They wanted to look like winners. And how do 00:07:05.939 --> 00:07:08.680 you do that in Europe and South America in the 00:07:08.680 --> 00:07:12.800 70s and 80s? Sports. Sports. Massive, high visibility 00:07:12.800 --> 00:07:15.120 sports marketing. Kansi understood something 00:07:15.120 --> 00:07:17.899 fundamental about branding. To build a global 00:07:17.899 --> 00:07:21.300 brand, you need credibility. You need to be seen. 00:07:21.439 --> 00:07:24.180 And nothing gives you instant credibility and 00:07:24.180 --> 00:07:27.160 a perception of wealth like plastering your logo 00:07:27.160 --> 00:07:29.500 on a winning team in a sport that just screams 00:07:29.500 --> 00:07:32.610 money. So let's talk about Formula One, because 00:07:32.610 --> 00:07:35.069 this is where the image of Parmalat really got 00:07:35.069 --> 00:07:37.449 burned into people's retinas. If you look at 00:07:37.449 --> 00:07:40.089 photos from the late 70s and 80s, that blue and 00:07:40.089 --> 00:07:43.389 white logo is everywhere. From 1978 to 1984, 00:07:43.930 --> 00:07:46.569 Parmalat wasn't just a sponsor. They were the 00:07:46.569 --> 00:07:49.069 title sponsor of the Bramham Formula One team. 00:07:49.209 --> 00:07:50.910 And this wasn't a back of the grid team. This 00:07:50.910 --> 00:07:52.649 wasn't some team just making up the numbers. 00:07:52.730 --> 00:07:54.589 Not at all. This was a front running championship 00:07:54.589 --> 00:07:56.970 contending team. They were associated with absolute 00:07:56.970 --> 00:08:00.680 legends. Mickey Lauda drove for them. and Piquet. 00:08:00.779 --> 00:08:03.160 Piquet won the world championship in 1981 and 00:08:03.160 --> 00:08:06.980 1983 driving a Brabham car with Parmalat written 00:08:06.980 --> 00:08:09.660 in huge letters all over it. When you saw that 00:08:09.660 --> 00:08:12.279 car, often a beautiful deep blue and white, you 00:08:12.279 --> 00:08:15.339 saw the Parmalat logo. It became synonymous with 00:08:15.339 --> 00:08:18.459 speed, precision, technology, and success. And 00:08:18.459 --> 00:08:20.319 they didn't stop there, did they? They sponsored 00:08:20.319 --> 00:08:23.399 Ligier, Arrows, Sauber, even the short -lived 00:08:23.399 --> 00:08:25.740 40 team later on. They were a fixture in the 00:08:25.740 --> 00:08:27.879 paddock for decades. And then there was football 00:08:27.879 --> 00:08:30.899 soccer. This was arguably even bigger for their 00:08:30.899 --> 00:08:32.879 brand recognition in Europe and South America. 00:08:33.080 --> 00:08:35.960 They owned Parna FC in Italy. Which, under their 00:08:35.960 --> 00:08:38.259 ownership, had a golden age of its own. I mean, 00:08:38.279 --> 00:08:40.200 they were a provincial team that suddenly started 00:08:40.200 --> 00:08:42.840 winning European trophies. They had world -class 00:08:42.840 --> 00:08:45.860 players like Gianluigi Buffon, Fabio Cannavaro, 00:08:45.879 --> 00:08:48.799 Hernan Crespo. Legends of the game. And they 00:08:48.799 --> 00:08:51.240 also owned Palmeiras in Brazil. one of the biggest 00:08:51.240 --> 00:08:53.659 clubs in South America. The brand visibility 00:08:53.659 --> 00:08:55.980 was immense. I want to pause on the psychology 00:08:55.980 --> 00:08:58.580 of this for a second because this isn't just 00:08:58.580 --> 00:09:01.759 vanity, right? Or is it partly vanity? If you 00:09:01.759 --> 00:09:05.620 are an investor or a banker or just a regular 00:09:05.620 --> 00:09:09.460 person in the supermarket and you see this company's 00:09:09.460 --> 00:09:13.320 logo on a Formula One car driven by a world champion. 00:09:14.090 --> 00:09:17.029 What do you think? You think they are rich? You 00:09:17.029 --> 00:09:19.230 think they are stable? You think they are powerful? 00:09:19.529 --> 00:09:22.049 Formula One is an incredibly expensive sport. 00:09:22.440 --> 00:09:25.059 It is a money pit. If a company can afford to 00:09:25.059 --> 00:09:27.259 burn hundreds of millions of dollars on racing 00:09:27.259 --> 00:09:29.879 cars and superstar soccer players, surely their 00:09:29.879 --> 00:09:32.539 core business finances are rock solid. It creates 00:09:32.539 --> 00:09:34.879 an aura of invincibility. Exactly. It acts as 00:09:34.879 --> 00:09:36.980 a shield against scrutiny. Who's going to question 00:09:36.980 --> 00:09:38.840 the accounting of the company that sponsors a 00:09:38.840 --> 00:09:41.360 world champion? It seems absurd. It's the ultimate 00:09:41.360 --> 00:09:44.240 fake it till you make it, except they had actually 00:09:44.240 --> 00:09:46.340 made it in terms of selling milk. They were selling 00:09:46.340 --> 00:09:48.720 real products. The sales were real. But the spending. 00:09:49.320 --> 00:09:52.480 the spending to maintain that image, that's where 00:09:52.480 --> 00:09:54.179 things start to get murky. And that leads us 00:09:54.179 --> 00:09:56.279 directly to the pivotal shift in the company's 00:09:56.279 --> 00:09:59.440 strategy. We're moving into the late 1990s. Right. 00:09:59.519 --> 00:10:03.460 So we have this successful, highly visible dairy 00:10:03.460 --> 00:10:07.759 empire. But in 1997, something fundamental changes. 00:10:08.100 --> 00:10:10.840 They decide that selling milk isn't enough. They 00:10:10.840 --> 00:10:13.080 want to play in the financial markets. This is 00:10:13.080 --> 00:10:15.379 the critical turning point in the story. The 00:10:15.379 --> 00:10:19.379 historical record shows that in 1997, Parmalat 00:10:19.379 --> 00:10:22.279 officially expands its operations into financial 00:10:22.279 --> 00:10:25.039 markets. They start financing their international 00:10:25.039 --> 00:10:27.679 acquisitions, particularly in the Western Hemisphere, 00:10:27.840 --> 00:10:30.879 by using... huge amounts of debt. Using debt, 00:10:31.000 --> 00:10:33.000 that phrase always makes me nervous when we talk 00:10:33.000 --> 00:10:34.940 about corporate history. It's like hearing ominous 00:10:34.940 --> 00:10:37.139 music in a horror movie. It should make you nervous. 00:10:37.679 --> 00:10:39.519 Essentially, they started acting less like a 00:10:39.519 --> 00:10:41.480 dairy company and more like a hedge fund that 00:10:41.480 --> 00:10:43.460 just happened to own some cows. They weren't 00:10:43.460 --> 00:10:45.580 just making money from operations anymore. They 00:10:45.580 --> 00:10:48.000 were juggling complex financial instruments. 00:10:48.299 --> 00:10:50.299 But why? I mean, if the milk business was so 00:10:50.299 --> 00:10:52.519 good, why start gambling on Wall Street? Well, 00:10:52.539 --> 00:10:54.639 the thing is, the margins on milk are actually 00:10:54.639 --> 00:10:57.220 quite thin. It's a high volume, low margin commodity. 00:10:57.820 --> 00:11:00.639 The incredible growth of the 70s and 80s was 00:11:00.639 --> 00:11:03.299 starting to slow down. But to keep the stock 00:11:03.299 --> 00:11:06.320 price up, to keep the banks happy, and to fund 00:11:06.320 --> 00:11:09.500 this lavish sports empire and the Tanzi family's 00:11:09.500 --> 00:11:11.960 other interests, they needed more cash than the 00:11:11.960 --> 00:11:13.960 milk business could provide. So they turned to 00:11:13.960 --> 00:11:16.100 the dark arts of finance to juice the numbers. 00:11:16.379 --> 00:11:20.080 That's one way to put it. And by 2001, the cracks 00:11:20.080 --> 00:11:23.200 were really starting to show internally. Many 00:11:23.200 --> 00:11:25.320 of these new divisions, especially the ones they'd 00:11:25.320 --> 00:11:27.340 bought with all that debt, were losing money. 00:11:27.720 --> 00:11:30.360 The core business was struggling to support the 00:11:30.360 --> 00:11:33.679 weight of this massive, inefficient empire. So 00:11:33.679 --> 00:11:36.879 what do they do? Do they cut costs? Do they downsize 00:11:36.879 --> 00:11:39.039 the F1 sponsorship? Do they sell off the money 00:11:39.039 --> 00:11:41.879 -losing parts? Knowing Tansy's ego, what do you 00:11:41.879 --> 00:11:43.919 think? I'm going to guess that's a hard no. No. 00:11:44.000 --> 00:11:46.059 They did the opposite. They doubled down. They 00:11:46.059 --> 00:11:48.779 shifted to using derivatives. Okay. Derivatives. 00:11:49.179 --> 00:11:51.419 That is a word that makes people's eyes glaze 00:11:51.419 --> 00:11:54.039 over. It sounds incredibly boring and technical. 00:11:54.320 --> 00:11:58.200 But in this story, it's the murder weapon. How 00:11:58.200 --> 00:12:00.399 do we explain this simply in the context of what 00:12:00.399 --> 00:12:03.080 Parmalat was doing? Think of a derivative as 00:12:03.080 --> 00:12:06.500 a complex financial bet. Its value is derived 00:12:06.500 --> 00:12:09.179 from something else, like the price of oil or 00:12:09.179 --> 00:12:11.519 an interest rate or a currency exchange rate. 00:12:11.639 --> 00:12:13.740 Now, companies use them all the time for legitimate 00:12:13.740 --> 00:12:16.059 reasons, like hedging. Right, like an airline 00:12:16.059 --> 00:12:18.500 buying a derivative to lock in a future price 00:12:18.500 --> 00:12:20.799 for jet fuel so they don't get wiped out if the 00:12:20.799 --> 00:12:22.940 price skyrockets. Exactly. That's responsible 00:12:22.940 --> 00:12:25.860 business. But the investigations later showed 00:12:25.860 --> 00:12:28.100 that Parmalat used them, and I'm quoting here, 00:12:28.259 --> 00:12:30.620 apparently at least in part with the intention 00:12:30.620 --> 00:12:33.340 of hiding the extent of its losses and debt. 00:12:33.600 --> 00:12:36.139 So they weren't hedging. They were hiding. They 00:12:36.139 --> 00:12:38.639 were using these complex bets to mask the fact 00:12:38.639 --> 00:12:40.340 that they were bleeding money. It's like using 00:12:40.340 --> 00:12:42.519 a smoke machine and mirrors to hide a raging 00:12:42.519 --> 00:12:44.620 fire in the building. That's a perfect analogy. 00:12:44.840 --> 00:12:46.840 They were cooking the books. They were creating 00:12:46.840 --> 00:12:50.039 these incredibly complex, opaque transactions 00:12:50.039 --> 00:12:54.059 between offshore shell companies that made it 00:12:54.059 --> 00:12:56.500 look like money was coming in or that debts didn't 00:12:56.500 --> 00:12:58.559 exist when they very much did. But the outside 00:12:58.559 --> 00:13:00.539 world didn't see the kitchen, right? They just 00:13:00.539 --> 00:13:02.899 saw the beautifully presented menu. They saw 00:13:02.899 --> 00:13:05.539 the stock price. The market had no idea. In fact, 00:13:05.559 --> 00:13:09.000 this is the wildest part. On April 22, 2002, 00:13:09.220 --> 00:13:12.059 with all this internal rot festering, Parmalat's 00:13:12.059 --> 00:13:14.399 share price hit a record high. A record high. 00:13:14.659 --> 00:13:16.860 While they were secretly drowning in billions 00:13:16.860 --> 00:13:19.080 of dollars of hidden debt. The company was valued 00:13:19.080 --> 00:13:29.720 at 3 .7 billion euros. The market... It's just 00:13:29.720 --> 00:13:32.100 incredible tension. On the outside, you have 00:13:32.100 --> 00:13:34.580 investors cheering. The stock is soaring. The 00:13:34.580 --> 00:13:37.179 Formula One cars are racing around Monaco. On 00:13:37.179 --> 00:13:39.120 the inside, the executives must have been sweating 00:13:39.120 --> 00:13:41.100 bullets every single day, just trying to keep 00:13:41.100 --> 00:13:43.529 the plate spinning. And that disconnect between 00:13:43.529 --> 00:13:46.370 valuation and reality can only last so long. 00:13:46.970 --> 00:13:49.210 Eventually, gravity takes over. You can only 00:13:49.210 --> 00:13:51.789 juggle that much debt for so long before you 00:13:51.789 --> 00:13:53.990 drop a ball. And gravity arrived with a vengeance 00:13:53.990 --> 00:13:57.070 in 2003. This is where the house of cards doesn't 00:13:57.070 --> 00:14:00.889 just wobble, it collapses. The timeline here 00:14:00.889 --> 00:14:03.149 is fascinating because it happens so quickly 00:14:03.149 --> 00:14:06.669 once the first domino falls. It goes from everything 00:14:06.669 --> 00:14:10.129 is fine to absolute apocalypse in a matter of 00:14:10.129 --> 00:14:13.419 months. So take us to February 2003. What is 00:14:13.419 --> 00:14:15.460 the trigger? What's the first crack that appears? 00:14:15.799 --> 00:14:17.919 It starts with the chief financial officer, a 00:14:17.919 --> 00:14:20.279 man named Fausto Tanna. He was one of Tanzi's 00:14:20.279 --> 00:14:22.679 closest lieutenants. He suddenly announces a 00:14:22.679 --> 00:14:25.399 new bond issue worth 300 billion euros. A bond 00:14:25.399 --> 00:14:27.720 issue basically means they're asking the market 00:14:27.720 --> 00:14:29.620 to lend them more money, right? Correct. They're 00:14:29.620 --> 00:14:32.460 issuing debt. But here is the twist. This announcement 00:14:32.460 --> 00:14:35.379 comes as a complete surprise to the CEO, Callisto 00:14:35.379 --> 00:14:38.529 Tanzi. Wait. The CFO tries to raise 300 million 00:14:38.529 --> 00:14:41.350 euros in emergency funds without the CEO knowing 00:14:41.350 --> 00:14:45.029 about it. That's beyond dysfunctional. It's incredibly 00:14:45.029 --> 00:14:47.629 dysfunctional. And it's spooked the markets. 00:14:47.970 --> 00:14:50.309 Think about it. Parmalat had been telling everyone 00:14:50.309 --> 00:14:52.529 they had huge cash reserves. They claimed they 00:14:52.529 --> 00:14:55.289 had billions in the bank. So why does this cash 00:14:55.289 --> 00:14:58.190 -rich, successful company suddenly need a quick... 00:14:58.440 --> 00:15:01.279 Desperate injection of 300 million euros. It 00:15:01.279 --> 00:15:03.360 smells of desperation. It smells like someone 00:15:03.360 --> 00:15:05.720 needs to pay a bill today and the drawer is empty. 00:15:06.000 --> 00:15:09.899 It does. And Tanzi reacts furiously. He forces 00:15:09.899 --> 00:15:12.259 Tana to resign. You're out. He makes him the 00:15:12.259 --> 00:15:15.759 scapegoat. Exactly. And he brings in a new CFO, 00:15:15.960 --> 00:15:18.960 a man named Alberto Ferraris, hoping to calm 00:15:18.960 --> 00:15:21.299 the markets. Now, I want to put myself in the 00:15:21.299 --> 00:15:23.639 shoes of poor Alberto Ferraris for a moment. 00:15:23.799 --> 00:15:26.080 He walks into this job thinking he's taking over 00:15:26.080 --> 00:15:28.500 the finances of a premier Italian corporation. 00:15:28.960 --> 00:15:31.399 He probably thinks this is the pinnacle of his 00:15:31.399 --> 00:15:34.419 career. And he gets the shock of his life. Ferraris 00:15:34.419 --> 00:15:36.940 gave an interview later to Time magazine, and 00:15:36.940 --> 00:15:39.419 he described this moment. He sits down, ready 00:15:39.419 --> 00:15:42.039 to work, asks for the books, and discovers that 00:15:42.039 --> 00:15:43.980 even though he is the chief financial officer 00:15:43.980 --> 00:15:46.539 of this multi -billion euro company, he doesn't 00:15:46.539 --> 00:15:48.299 have access to all the corporate accounts. That 00:15:48.299 --> 00:15:52.179 is a massive, flashing, screaming red flag. That's 00:15:52.179 --> 00:15:54.279 like a pilot getting into the cockpit and finding 00:15:54.279 --> 00:15:56.720 out the controls are locked. Who has the books? 00:15:56.980 --> 00:15:59.740 The chief accounting officer, a man named Luciano 00:15:59.740 --> 00:16:02.340 del Soldato, who reported directly to the old 00:16:02.340 --> 00:16:05.919 CFO on Norris. He controlled a parallel set of 00:16:05.919 --> 00:16:09.279 books. A shadow accounting system. So the CFO 00:16:09.279 --> 00:16:11.679 is locked out of the accounting room, essentially. 00:16:12.000 --> 00:16:15.480 Yes. But Ferraris is smart. He knows something 00:16:15.480 --> 00:16:18.720 is profoundly wrong. He starts making inquiries. 00:16:18.779 --> 00:16:22.200 He starts digging into the web of offshore subsidiaries. 00:16:22.220 --> 00:16:24.639 And he begins to suspect that the total debt 00:16:24.639 --> 00:16:26.899 of the company is more than double what is shown 00:16:26.899 --> 00:16:29.000 on the official balance sheet. Double. So if 00:16:29.000 --> 00:16:30.799 they said they owed $5 billion, it was actually 00:16:30.799 --> 00:16:33.659 $10 million or more. Or worse. He realizes the 00:16:33.659 --> 00:16:36.169 numbers simply don't add up. The cash they claim 00:16:36.169 --> 00:16:38.490 to have can't be verified. So naturally, the 00:16:38.490 --> 00:16:41.690 panic sets in. September 2003 rolls around. That 00:16:41.690 --> 00:16:44.009 300 million euro fundraising plan is dropped 00:16:44.009 --> 00:16:46.870 because the scrutiny is now too high. No one 00:16:46.870 --> 00:16:48.690 wants to lend them money. The markets are getting 00:16:48.690 --> 00:16:51.330 jittery. The share price starts plummeting. And 00:16:51.330 --> 00:16:55.330 then a new mysterious name enters the chat. Epicurum. 00:16:55.850 --> 00:16:58.259 Epicurum. Sounds like a spell from Harry Potter. 00:16:58.620 --> 00:17:02.440 Or a villain's evil corporation. What is Epicurum? 00:17:02.580 --> 00:17:04.640 It was a mutual fund based in the Cayman Islands. 00:17:04.920 --> 00:17:06.640 Of course it's in the Cayman Islands. It's always 00:17:06.640 --> 00:17:08.440 the Cayman Islands in these stories. Naturally. 00:17:09.160 --> 00:17:11.059 Parmalat claimed they had invested hundreds of 00:17:11.059 --> 00:17:13.920 millions of euros into this fund. It was a major 00:17:13.920 --> 00:17:17.400 asset on their books. But auditors started asking 00:17:17.400 --> 00:17:20.000 pointed questions. They wanted to verify these 00:17:20.000 --> 00:17:22.740 transactions. They wanted proof that this investment 00:17:22.740 --> 00:17:26.380 was real and liquid. And Ferraris, the new CFO 00:17:26.380 --> 00:17:28.519 who's asking too many questions, he doesn't last 00:17:28.519 --> 00:17:31.500 long, does he? No. He resigns in November after 00:17:31.500 --> 00:17:34.440 a public fallout with Tansy. He lasted less than 00:17:34.440 --> 00:17:36.799 a year. He probably realized the ship was sinking 00:17:36.799 --> 00:17:39.119 and got on the first lifeboat he could find. 00:17:39.440 --> 00:17:41.579 You can't blame him. I'm not going to jail for 00:17:41.579 --> 00:17:44.039 this. No way. So who takes over? Luciano del 00:17:44.039 --> 00:17:46.299 Soldado, the guy who was hiding the books, is 00:17:46.299 --> 00:17:49.299 promoted to CFO. The Fox is now officially guarding 00:17:49.299 --> 00:17:51.539 the hen house. But even the Fox couldn't fix 00:17:51.539 --> 00:17:55.450 this. The hole was too big. Del Soldato resigns 00:17:55.450 --> 00:17:58.089 just one month later. A month. Because he needed 00:17:58.089 --> 00:18:01.609 to get cash from that Epicurum fund to pay debts 00:18:01.609 --> 00:18:04.509 and make bond payments totaling at least 150 00:18:04.509 --> 00:18:07.529 million euros that were coming due. He tried 00:18:07.529 --> 00:18:09.950 to liquidate the investment and he couldn't get 00:18:09.950 --> 00:18:11.690 the money. Because the money probably wasn't 00:18:11.690 --> 00:18:13.769 there. It was another phantom asset. Exactly. 00:18:13.869 --> 00:18:17.029 And this leads us to the climax. The absolute 00:18:17.029 --> 00:18:20.799 smoking gun. This is the moment. The entire global 00:18:20.799 --> 00:18:23.819 financial world gasped. The bond lot forgery. 00:18:23.940 --> 00:18:25.980 Bond lot financing corporation. There's another 00:18:25.980 --> 00:18:29.880 subsidiary set up in the Cayman Islands. Parmalat 00:18:29.880 --> 00:18:32.619 claimed that Bondlot had a bank account with 00:18:32.619 --> 00:18:35.279 Bank of America in New York containing a significant 00:18:35.279 --> 00:18:37.839 amount of cash. How significant are we talking? 00:18:37.980 --> 00:18:41.180 3 .95 billion euros. Almost 4 billion euros just 00:18:41.180 --> 00:18:43.200 sitting in a single bank account? That's an insane 00:18:43.200 --> 00:18:45.359 amount of cash for any company to just have sitting 00:18:45.359 --> 00:18:47.279 around. That's what they claimed. They used this 00:18:47.279 --> 00:18:49.460 supposed account on their balance sheet to offset 00:18:49.460 --> 00:18:51.740 their massive debts. Yes, we owe billions, but 00:18:51.740 --> 00:18:54.440 look, we have this huge 4 billion euro savings 00:18:54.440 --> 00:18:57.799 account. We're fine. Then... The auditors and 00:18:57.799 --> 00:19:00.059 Bank of America finally communicated directly. 00:19:00.539 --> 00:19:03.059 Bank of America releases a document on December 00:19:03.059 --> 00:19:06.880 19, 2003, and they reveal that the document Parmalat 00:19:06.880 --> 00:19:09.740 had been using to prove this money existed was 00:19:09.740 --> 00:19:13.180 a complete and utter forgery. A forgery. Now, 00:19:13.240 --> 00:19:15.420 when you say forgery, was this some high -tech 00:19:15.420 --> 00:19:19.400 Ocean's Eleven digital hacking job? No. And this 00:19:19.400 --> 00:19:21.700 is the part that is almost comical if it weren't 00:19:21.700 --> 00:19:24.640 so tragic. Reports from the investigation suggest 00:19:24.640 --> 00:19:27.440 it was laughably crude. We're talking about a 00:19:27.440 --> 00:19:30.180 document that was allegedly created using a scanner, 00:19:30.279 --> 00:19:32.420 a printer, and maybe some scissors and glue or 00:19:32.420 --> 00:19:34.559 tape. You're kidding. They literally faked a 00:19:34.559 --> 00:19:36.960 bank confirmation letter on what was supposed 00:19:36.960 --> 00:19:39.059 to be Bank of America letterhead. They scanned 00:19:39.059 --> 00:19:41.299 a real signature, pasted it onto a fake document, 00:19:41.460 --> 00:19:43.859 and then photocopied it multiple times to try 00:19:43.859 --> 00:19:46.460 and hide the imperfections. That is absurd. A 00:19:46.460 --> 00:19:49.339 global multinational corporation, a titan of 00:19:49.339 --> 00:19:51.480 Italian industry sponsoring Formula One champions, 00:19:51.660 --> 00:19:54.500 is faking a 4 billion euro bank balance with 00:19:54.500 --> 00:19:57.269 a scanner and a photocopier. It shows the sheer 00:19:57.269 --> 00:19:59.849 level of desperation they had reached. It was 00:19:59.849 --> 00:20:02.289 a complete fabrication. The money did not exist. 00:20:02.569 --> 00:20:06.650 Not a single cent of that 3 .95 billion was real. 00:20:06.829 --> 00:20:08.529 I just want to pause on the magnitude of that. 00:20:08.710 --> 00:20:11.029 We aren't talking about fudging the profit margins 00:20:11.029 --> 00:20:13.589 by a percent or two. We are talking about inventing 00:20:13.589 --> 00:20:16.609 nearly 4 billion euros out of thin air. That's 00:20:16.609 --> 00:20:19.490 the GDP of a small island nation. It's staggering. 00:20:19.630 --> 00:20:22.640 When that news hit the wires, it was over. The 00:20:22.640 --> 00:20:25.359 game was up. There was no spinning that. A forged 00:20:25.359 --> 00:20:29.220 document for four billion euros. So Tanzia resigns. 00:20:29.220 --> 00:20:31.720 The firm is declared insolvent in late December 00:20:31.720 --> 00:20:35.039 2003. And now the investigators finally get to 00:20:35.039 --> 00:20:37.359 go in and see just how deep the rabbit hole goes. 00:20:38.029 --> 00:20:40.549 Kansey initially admits to a hole, as he called 00:20:40.549 --> 00:20:43.329 it, of 8 billion euros. I only lost 8 billion, 00:20:43.430 --> 00:20:45.630 guys. Relax. It's just 8 billion. It's incredible 00:20:45.630 --> 00:20:48.309 hubris even in the confession. It is. But the 00:20:48.309 --> 00:20:50.450 administration auditors, the forensic accountants, 00:20:50.450 --> 00:20:52.630 they get to work. They start peeling back the 00:20:52.630 --> 00:20:54.829 layers of shell companies, the offshore accounts, 00:20:55.029 --> 00:20:58.109 the fake transactions, and the real number. The 00:20:58.109 --> 00:21:02.250 total debt was 14 .3 billion euros. 14 .3 billion. 00:21:02.369 --> 00:21:04.789 It was almost eight times the sum originally 00:21:04.789 --> 00:21:07.839 stated by the company to the public. To this 00:21:07.839 --> 00:21:09.940 day, it remains Europe's biggest bankruptcy. 00:21:10.799 --> 00:21:12.799 So how did they do it? I mean, apart from the 00:21:12.799 --> 00:21:15.339 fake bank account with the photocopier, how do 00:21:15.339 --> 00:21:19.119 you hide $14 billion in debt for years? Well, 00:21:19.220 --> 00:21:21.619 the expert analysis from the aftermath points 00:21:21.619 --> 00:21:24.660 to a few core mechanisms. One was the creation 00:21:24.660 --> 00:21:27.500 of these phantom assets using things called credit 00:21:27.500 --> 00:21:29.730 -linked notes. Talk us through that, because 00:21:29.730 --> 00:21:32.029 that sounds like financial word salad designed 00:21:32.029 --> 00:21:34.529 to confuse people. It is complicated, but let's 00:21:34.529 --> 00:21:37.410 try an analogy. Imagine I write an IOU to myself 00:21:37.410 --> 00:21:40.329 for a million dollars. I put that IOU in my safe. 00:21:40.470 --> 00:21:42.869 Then I go to the bank and say, hey, I have an 00:21:42.869 --> 00:21:44.970 asset worth a million dollars in my safe. Please 00:21:44.970 --> 00:21:47.670 lend me money against it. OK, but the asset is 00:21:47.670 --> 00:21:49.589 just a promise from you to you. It's worthless. 00:21:50.210 --> 00:21:53.029 Exactly. But if I set up a shell company that 00:21:53.029 --> 00:21:54.829 came in islands and I have that company write 00:21:54.829 --> 00:21:58.440 the IOU. to my main company, and I dress it up 00:21:58.440 --> 00:22:00.839 in complex legal language to make it look like 00:22:00.839 --> 00:22:03.380 a legitimate investment, suddenly looks like 00:22:03.380 --> 00:22:05.900 a real asset on my balance sheet. The official 00:22:05.900 --> 00:22:08.500 source material describes it as placing a bet 00:22:08.500 --> 00:22:11.000 on its own creditworthiness to conjure up an 00:22:11.000 --> 00:22:13.759 asset out of thin air. So they were betting that 00:22:13.759 --> 00:22:15.359 they would be able to pay themselves back using 00:22:15.359 --> 00:22:18.119 money they didn't have. It's a completely circular, 00:22:18.319 --> 00:22:20.700 self -referential piece of financial engineering. 00:22:20.880 --> 00:22:23.039 It is. You create an asset that is essentially 00:22:23.039 --> 00:22:25.700 just a reflection of your own debt. It works 00:22:25.700 --> 00:22:28.180 fine on paper until someone asks for the actual 00:22:28.180 --> 00:22:31.539 cash. Then the circle breaks. But it wasn't just 00:22:31.539 --> 00:22:33.599 complex financial engineering, was it? It was 00:22:33.599 --> 00:22:35.920 also good old -fashioned theft and diversion 00:22:35.920 --> 00:22:38.900 of funds. Where was the actual cash going? Because 00:22:38.900 --> 00:22:40.779 they were selling milk. Real cash was coming 00:22:40.779 --> 00:22:42.799 in the door every day. A lot of it was being 00:22:42.799 --> 00:22:46.119 siphoned off. Tansey admitted during interrogations 00:22:46.119 --> 00:22:48.359 to diverting hundreds of millions of euros to 00:22:48.359 --> 00:22:50.579 Parmator, which was a travel group owned by his 00:22:50.579 --> 00:22:53.339 family. It was a financial disaster, losing money 00:22:53.339 --> 00:22:56.019 hand over fist. He was propping it up with Parmalat's 00:22:56.019 --> 00:22:58.119 money. And to the football clubs as well, right? 00:22:58.220 --> 00:23:01.160 To pay for those superstar players? Yes. But 00:23:01.160 --> 00:23:03.579 there was another, even bigger hole. This was 00:23:03.579 --> 00:23:06.579 about his personal ambition. There was a media 00:23:06.579 --> 00:23:09.240 rivalry involved. This wasn't just about money. 00:23:09.259 --> 00:23:12.309 It was about power and prestige in Italy. You're 00:23:12.309 --> 00:23:15.069 talking about his rivalry with Silvio Berlusconi. 00:23:15.069 --> 00:23:17.950 Yes. At the time, Berlusconi was not only the 00:23:17.950 --> 00:23:20.309 prime minister, but also Italy's biggest media 00:23:20.309 --> 00:23:22.569 mogul, the most powerful man in the country. 00:23:22.769 --> 00:23:25.049 And Tanzi wanted to be on that level. He wanted 00:23:25.049 --> 00:23:28.069 a seat at that table. He tried to buy a television 00:23:28.069 --> 00:23:31.309 network called Odeon TV to rival Berlusconi's 00:23:31.309 --> 00:23:34.210 media empire. It was an absolute disaster. He 00:23:34.210 --> 00:23:36.130 had no idea what he was doing in the media world. 00:23:36.289 --> 00:23:38.950 He eventually sold it at a huge loss, about 45 00:23:38.950 --> 00:23:41.980 million euros gone, just like that. So this wasn't 00:23:41.980 --> 00:23:44.940 just greed. It was ego. It was a failed attempt 00:23:44.940 --> 00:23:48.259 to build a dynastic empire across media, sports 00:23:48.259 --> 00:23:51.900 and tourism to compete with the likes of Berlusconi 00:23:51.900 --> 00:23:54.319 and the other great Italian industrialists. And 00:23:54.319 --> 00:23:57.299 he used the public company, the milk money from 00:23:57.299 --> 00:24:00.019 shareholders and bondholders to fund it all. 00:24:00.160 --> 00:24:02.720 He treated Parmalat like his own personal piggy 00:24:02.720 --> 00:24:06.119 bank. So the House of Cards is down. The police 00:24:06.119 --> 00:24:08.589 are at the door. Let's talk about. justice or 00:24:08.589 --> 00:24:10.470 the lack thereof in the aftermath, because usually 00:24:10.470 --> 00:24:13.210 in these massive white collar crime stories, 00:24:13.430 --> 00:24:15.630 the top guys walk away with a slap on the wrist. 00:24:15.750 --> 00:24:18.369 Well, Callisto Tanzi was detained hours after 00:24:18.369 --> 00:24:20.890 the firm was declared insolvent. He was arrested, 00:24:20.990 --> 00:24:24.170 along with five other executives. The image of 00:24:24.170 --> 00:24:26.250 Tanzi, this man who had been treated like royalty 00:24:26.250 --> 00:24:29.009 in Italy for decades, being led away in handcuffs, 00:24:29.029 --> 00:24:30.990 was a huge national moment. And what happened 00:24:30.990 --> 00:24:33.230 to him? Did he actually serve time? He did. He 00:24:33.230 --> 00:24:35.230 was eventually sentenced to 10 years in prison 00:24:35.230 --> 00:24:38.069 for fraud relating to the collapse. Later, there 00:24:38.069 --> 00:24:40.089 were other sentences for other aspects of the 00:24:40.089 --> 00:24:42.509 bankruptcy, like fraudulent bankruptcy and market 00:24:42.509 --> 00:24:44.609 rigging, which brought the total sentence to 00:24:44.609 --> 00:24:49.809 nearly 18 years. 10 to 18 years. For a 14 billion 00:24:49.809 --> 00:24:54.309 euro fraud, it feels. I don't know. When you 00:24:54.309 --> 00:24:57.210 look at the scale of the damage, hundreds of 00:24:57.210 --> 00:24:59.950 thousands of small investors, pensioners who 00:24:59.950 --> 00:25:02.089 bought Parmalat bonds thinking they were as safe 00:25:02.089 --> 00:25:04.309 as government bonds, lost their life savings. 00:25:04.470 --> 00:25:06.670 It's a profound tragedy. And while Tanzi went 00:25:06.670 --> 00:25:09.329 to jail, there was a lot of public anger about 00:25:09.329 --> 00:25:11.269 the others who were involved. What about them? 00:25:11.759 --> 00:25:14.299 The other executives, the bankers. Seven other 00:25:14.299 --> 00:25:16.779 defendants, including executives and some bankers, 00:25:16.839 --> 00:25:19.819 were acquitted in one of the main trials. Acquitted? 00:25:19.839 --> 00:25:22.480 How is that possible? It's very hard to prove 00:25:22.480 --> 00:25:24.859 intent in these incredibly complex financial 00:25:24.859 --> 00:25:27.200 cases. I didn't know the full picture or I was 00:25:27.200 --> 00:25:30.400 following orders is a powerful defense. Plausible 00:25:30.400 --> 00:25:32.690 deniability is built into the complexity. But 00:25:32.690 --> 00:25:34.670 what about the enablers? We have to talk about 00:25:34.670 --> 00:25:36.910 the big banks and the auditors. Because how does 00:25:36.910 --> 00:25:39.329 an auditor whose only job is to check the numbers 00:25:39.329 --> 00:25:42.410 miss a 14 billion euro hole? How do they not 00:25:42.410 --> 00:25:45.710 verify a 4 billion euro bank account? That is 00:25:45.710 --> 00:25:47.950 the multi -billion dollar question, isn't it? 00:25:48.450 --> 00:25:51.069 The new management of Parmalat, the people brought 00:25:51.069 --> 00:25:53.170 in to clean up the mess under government supervision, 00:25:53.589 --> 00:25:57.009 they went on a warpath. They sued the gatekeepers. 00:25:57.470 --> 00:26:00.910 Bank of America. Deloitte and Grant Thornton 00:26:00.910 --> 00:26:03.569 International, who was their auditor. The allegation 00:26:03.569 --> 00:26:07.289 being that they were either grossly, almost criminally 00:26:07.289 --> 00:26:10.190 incompetent or they were in on it. The official 00:26:10.190 --> 00:26:12.769 allegation was that they were negligent and had 00:26:12.769 --> 00:26:15.690 aided and abetted the fraud. Basically, they 00:26:15.690 --> 00:26:17.789 either kept the scheme going by not doing their 00:26:17.789 --> 00:26:20.150 jobs properly or they actively looked the other 00:26:20.150 --> 00:26:22.450 way because the fees were so good. Parmalat was 00:26:22.450 --> 00:26:25.069 a huge, prestigious client. You don't want to 00:26:25.069 --> 00:26:26.670 upset that kind of client by asking too many 00:26:26.670 --> 00:26:29.049 hard questions. And did they pay for this alleged 00:26:29.049 --> 00:26:31.390 negligence? They did. They settled. Deloitte 00:26:31.390 --> 00:26:34.549 settled for $149 million. Bank of America settled 00:26:34.549 --> 00:26:37.190 for $100 million. Grant Thornton settled for 00:26:37.190 --> 00:26:40.269 a smaller amount, around $4 .4 million. So in 00:26:40.269 --> 00:26:42.589 total, the new management recovered about $700 00:26:42.589 --> 00:26:45.410 million through these lawsuits. Which, on its 00:26:45.410 --> 00:26:47.930 own, sounds like a lot of money. It does, until 00:26:47.930 --> 00:26:51.480 you remember the whole was $14 .3 billion. It's 00:26:51.480 --> 00:26:54.380 pennies on the dollar. It's less than five cents 00:26:54.380 --> 00:26:57.200 for every dollar that was lost. Exactly. It helps 00:26:57.200 --> 00:26:59.420 the company survive, but it doesn't make the 00:26:59.420 --> 00:27:02.759 investors whole. Not even close. It does raise 00:27:02.759 --> 00:27:05.059 that interesting discussion point, though. Does 00:27:05.059 --> 00:27:07.579 paying a massive settlement like that admit guilt? 00:27:07.900 --> 00:27:10.940 Legally, absolutely not. The settlements always 00:27:10.940 --> 00:27:13.039 come with a carefully worded statement saying, 00:27:13.099 --> 00:27:17.200 we admit no wrongdoing, but practically. in the 00:27:17.200 --> 00:27:19.640 court of public opinion. It suggests they knew 00:27:19.640 --> 00:27:22.880 they had significant legal exposure. They knew 00:27:22.880 --> 00:27:24.819 that if this went in front of a jury, they could 00:27:24.819 --> 00:27:27.160 lose a lot more. They paid to make the problem 00:27:27.160 --> 00:27:29.720 go away. So Parmalat, the corporate entity, is 00:27:29.720 --> 00:27:31.960 shattered. The founder is in jail. The money 00:27:31.960 --> 00:27:34.700 is gone. But, and this is the crazy part of the 00:27:34.700 --> 00:27:36.880 story, I can still go to the store today and 00:27:36.880 --> 00:27:39.579 buy... Parmalat milk. I saw it on the shelf yesterday. 00:27:39.799 --> 00:27:41.599 You absolutely can. And this is the resurrection 00:27:41.599 --> 00:27:44.460 chapter of our story. And frankly, it's just 00:27:44.460 --> 00:27:46.880 as dramatic and revealing as the fall. Because 00:27:46.880 --> 00:27:49.160 Parmalat, the brand and the operation, didn't 00:27:49.160 --> 00:27:52.859 die. No. The Italian government stepped in immediately. 00:27:53.559 --> 00:27:56.420 And this was under Berlusconi, ironically enough, 00:27:56.640 --> 00:27:59.859 given Tanzi's rivalry with him. They passed an 00:27:59.859 --> 00:28:02.319 emergency decree. changing the bankruptcy laws 00:28:02.319 --> 00:28:04.759 to allow for an accelerated protection process 00:28:04.759 --> 00:28:08.059 for large strategic companies. Why? To save the 00:28:08.059 --> 00:28:10.220 company? To save the jobs and the industrial 00:28:10.220 --> 00:28:13.059 infrastructure. They appointed a super commissioner. 00:28:13.529 --> 00:28:15.950 an industrial turnaround specialist named Enrico 00:28:15.950 --> 00:28:18.910 Bondi, to save the operational part of the company. 00:28:19.069 --> 00:28:20.950 Because at the end of the day, the fraud was 00:28:20.950 --> 00:28:23.130 in the finance department, the cows were still 00:28:23.130 --> 00:28:25.410 producing milk, the factories were still pasteurizing 00:28:25.410 --> 00:28:27.329 it, and people still wanted to buy breakfast. 00:28:27.589 --> 00:28:30.250 That is the key insight. The core business, the 00:28:30.250 --> 00:28:32.670 actual industrial operation of moving white liquid 00:28:32.670 --> 00:28:35.430 from cows to cartons, was viable. It was even 00:28:35.430 --> 00:28:37.430 profitable in many areas. It was the financial 00:28:37.430 --> 00:28:39.630 superstructure built on top of it that was rotten 00:28:39.630 --> 00:28:42.440 to the core. Bondi's job was to strip away all 00:28:42.440 --> 00:28:45.119 the rot. So he cut the sports sponsorships, the 00:28:45.119 --> 00:28:48.900 F1 cars, the football clubs. All gone. Immediately. 00:28:49.319 --> 00:28:52.160 He sold off non -core assets. He shut down the 00:28:52.160 --> 00:28:54.519 useless offshore companies. He focused purely 00:28:54.519 --> 00:28:56.920 on the milk and the food products. And it worked. 00:28:57.099 --> 00:29:00.519 By 2011, the company is back on its feet. Surprisingly, 00:29:00.519 --> 00:29:04.369 yes. It was a remarkable turnaround. By 2011, 00:29:04.630 --> 00:29:06.829 they were healthy again. They had paid down debt 00:29:06.829 --> 00:29:09.789 and they had grown their cash reserves to 1 .5 00:29:09.789 --> 00:29:12.470 billion euros. They were sitting on a mountain 00:29:12.470 --> 00:29:14.950 of cash. Which made them a target for takeover. 00:29:15.069 --> 00:29:17.309 Because in the world of capitalism, if you have 00:29:17.309 --> 00:29:19.789 a lot of cash and a strong, globally recognized 00:29:19.789 --> 00:29:22.849 brand, someone is going to try to buy you. Enter 00:29:22.849 --> 00:29:25.869 the French. a company called Lactalis. Lactalis 00:29:25.869 --> 00:29:28.950 is a privately owned French multinational dairy 00:29:28.950 --> 00:29:31.970 giant. They're owned by the Besnier family, who 00:29:31.970 --> 00:29:34.170 are known for being incredibly secretive and 00:29:34.170 --> 00:29:36.269 ruthlessly aggressive in their business dealings. 00:29:36.369 --> 00:29:39.890 In March 2011, they saw their opportunity and 00:29:39.890 --> 00:29:41.950 started buying up Parmalat shares on the open 00:29:41.950 --> 00:29:44.319 market. And this wasn't a friendly, hey, let's 00:29:44.319 --> 00:29:46.539 merge conversation, was it? This was hostile. 00:29:46.880 --> 00:29:49.819 No, this was a corporate raid. They quietly purchased 00:29:49.819 --> 00:29:51.839 nearly 30 % of the company on the open market 00:29:51.839 --> 00:29:53.920 before anyone in the Italian government or business 00:29:53.920 --> 00:29:55.640 establishment really knew what was happening. 00:29:56.099 --> 00:29:58.579 Then they launched a full takeover offer for 00:29:58.579 --> 00:30:00.819 the rest. The Italians must have hated this. 00:30:01.200 --> 00:30:03.839 Parmalat was a national champion, a symbol of 00:30:03.839 --> 00:30:06.619 Italian industry. Losing it to their rivals, 00:30:06.880 --> 00:30:10.049 the French. There was a huge political outcry. 00:30:10.509 --> 00:30:13.049 Defend Italian industry. We can't let this happen. 00:30:13.269 --> 00:30:16.170 But the reality was the shareholders wanted the 00:30:16.170 --> 00:30:19.430 money. The Lactalis offer was a good one. By 00:30:19.430 --> 00:30:22.630 July 2011, they had succeeded. Lactalis controlled 00:30:22.630 --> 00:30:25.609 over 80 % of the company. For a price of about... 00:30:25.799 --> 00:30:29.259 2 .5 billion euros. Which, honestly, was an absolute 00:30:29.259 --> 00:30:31.200 steal when you consider the global footprint 00:30:31.200 --> 00:30:33.460 of the brand they were acquiring. They bought 00:30:33.460 --> 00:30:36.039 a global infrastructure for a bargain price, 00:30:36.299 --> 00:30:38.579 all because the fraud had made it vulnerable. 00:30:38.960 --> 00:30:41.579 But the drama didn't end there. Like, Talas wanted 00:30:41.579 --> 00:30:43.720 to take the company private, right? They wanted 00:30:43.720 --> 00:30:45.859 to delist it from the stock exchange so they 00:30:45.859 --> 00:30:47.539 didn't have to deal with public reporting requirements 00:30:47.539 --> 00:30:49.960 and minority shareholders anymore. And that turned 00:30:49.960 --> 00:30:52.740 into a years -long battle. This is the part that 00:30:52.740 --> 00:30:55.819 plays out like a corporate courtroom drama. They 00:30:55.819 --> 00:30:58.279 tried in 2016 to buy out the remaining shareholders. 00:30:58.559 --> 00:31:01.259 They offered 2 .8 euros per share, then had to 00:31:01.259 --> 00:31:03.599 raise it to 3 euros. Who was stopping them? If 00:31:03.599 --> 00:31:06.259 they owned over 80%, why couldn't they just do 00:31:06.259 --> 00:31:09.099 it? A very aggressive activist hedge fund called 00:31:09.099 --> 00:31:11.859 Amber Catadel, along with other minority shareholders, 00:31:12.240 --> 00:31:14.400 they dug their heels in. They argued the price 00:31:14.400 --> 00:31:16.680 was far too low and that Lactalis was trying 00:31:16.680 --> 00:31:18.519 to steal the rest of the company from them on 00:31:18.519 --> 00:31:20.539 the cheap. They fought them in the courts and 00:31:20.539 --> 00:31:23.619 in the press for years. It's so ironic. A company 00:31:23.619 --> 00:31:25.819 destroyed by complex financial engineering becomes 00:31:25.819 --> 00:31:28.180 the battleground for activist hedge funds years 00:31:28.180 --> 00:31:30.700 later. It is. But eventually, the French won. 00:31:31.339 --> 00:31:34.099 Lactalis has incredibly deep pockets and more 00:31:34.099 --> 00:31:36.319 patience. They kept raising their offer slightly, 00:31:36.599 --> 00:31:40.119 buying more shares. By 2019, they finally reached 00:31:40.119 --> 00:31:43.420 95 % ownership, which allowed them to forcibly 00:31:43.420 --> 00:31:46.160 buy the rest and delist the company. So today, 00:31:46.259 --> 00:31:48.500 Parmalat is no longer an Italian public company. 00:31:48.579 --> 00:31:51.640 It's a subsidiary of a private French multinational. 00:31:51.799 --> 00:31:54.880 And the cost to Italy was significant. The source 00:31:54.880 --> 00:31:57.180 material notes that Lactalis moved all strategic 00:31:57.180 --> 00:31:59.720 activities, the headquarters, the decision making 00:31:59.720 --> 00:32:02.460 to France. The brain of the company left Parma. 00:32:03.059 --> 00:32:05.559 Over the years, operations in Italy were wound 00:32:05.559 --> 00:32:08.160 down or consolidated. Even the future of the 00:32:08.160 --> 00:32:10.559 historical factory in Rome was in doubt in 2019. 00:32:11.230 --> 00:32:13.950 It's a tragic end to an Italian industrial icon 00:32:13.950 --> 00:32:17.990 born in Parma, destroyed by internal fraud, rescued 00:32:17.990 --> 00:32:20.410 by the state, and then swallowed up by a foreign 00:32:20.410 --> 00:32:22.869 competitor. It's a common story in modern globalization. 00:32:23.250 --> 00:32:26.650 But the fraud is what made it possible. It left 00:32:26.650 --> 00:32:29.190 the company wounded and vulnerable to a predator. 00:32:29.470 --> 00:32:32.809 And yet, despite all this, the fraud, the jail 00:32:32.809 --> 00:32:35.869 time, the foreign takeover, the brand is still 00:32:35.869 --> 00:32:39.150 massive today. It is. If we look at their current 00:32:39.150 --> 00:32:41.380 state. They have operations all over the world. 00:32:41.680 --> 00:32:44.359 Europe, North and South America, Australia, China, 00:32:44.579 --> 00:32:46.940 South Africa. The brand itself survived everything. 00:32:47.180 --> 00:32:48.960 I was looking at the list of countries where 00:32:48.960 --> 00:32:50.819 they have a direct presence. It's expensive. 00:32:51.160 --> 00:32:54.240 Canada, Russia, Venezuela, Colombia, Ecuador, 00:32:54.539 --> 00:32:56.059 Romania. And then they have license agreements 00:32:56.059 --> 00:32:59.180 in huge markets like USA. Brazil, Spain, and 00:32:59.180 --> 00:33:01.480 China, you can find their products almost everywhere. 00:33:01.660 --> 00:33:03.960 And they still have a huge portfolio of brands. 00:33:04.019 --> 00:33:06.380 It's not just Parmalat UHT Milk anymore. No, 00:33:06.420 --> 00:33:08.559 they own Santel Juices, which is a huge brand, 00:33:08.799 --> 00:33:11.960 Malou Desserts, Cure Yogurts. The company today 00:33:11.960 --> 00:33:14.259 has something like 140 production centers around 00:33:14.259 --> 00:33:17.019 the world and still employs around 16 ,000 people. 00:33:17.180 --> 00:33:20.859 16 ,000 people. That's 16 ,000 families relying 00:33:20.859 --> 00:33:23.309 on this company for their livelihood. Which brings 00:33:23.309 --> 00:33:25.269 us back to why the government intervened in the 00:33:25.269 --> 00:33:27.450 first place. You can't just let a company that 00:33:27.450 --> 00:33:29.890 size evaporate overnight, even if the leadership 00:33:29.890 --> 00:33:32.150 was completely criminal. The collateral damage 00:33:32.150 --> 00:33:35.289 to the real economy is just too high. So let's 00:33:35.289 --> 00:33:37.670 wrap this up. We've gone on this incredible journey 00:33:37.670 --> 00:33:40.730 from a 22 -year -old dreamer in a small Italian 00:33:40.730 --> 00:33:45.529 town in 1961 to a global dairy king to a financial 00:33:45.529 --> 00:33:48.490 fraudster to a prisoner. And we saw the scale 00:33:48.490 --> 00:33:52.289 of the fake money. that 3 .95 billion euro forgery, 00:33:52.450 --> 00:33:55.109 the image of someone at a global corporation 00:33:55.109 --> 00:33:58.390 using a scanner and a photocopier to fake the 00:33:58.390 --> 00:34:01.329 GDP of a small country, that is going to stick 00:34:01.329 --> 00:34:03.750 with me. It really is the fake it till you make 00:34:03.750 --> 00:34:06.289 it strategy taken to its most criminal and ultimately 00:34:06.289 --> 00:34:08.610 absurd extreme. They faked it until they broke 00:34:08.610 --> 00:34:10.309 everything. But I think the big takeaway for 00:34:10.309 --> 00:34:12.269 me is really about oversight and complexity. 00:34:12.489 --> 00:34:16.230 It's a cautionary tale. When the CFO... The person 00:34:16.230 --> 00:34:18.289 whose entire job is to manage the money can't 00:34:18.289 --> 00:34:20.949 see all the books. Run. When a company is making 00:34:20.949 --> 00:34:24.230 more of its supposed profit from financial derivatives 00:34:24.230 --> 00:34:27.929 than from selling its actual product, run. When 00:34:27.929 --> 00:34:30.809 the complexity of the finance completely overshadows 00:34:30.809 --> 00:34:33.230 the simplicity of the core business, that is 00:34:33.230 --> 00:34:35.590 a massive warning sign. It's a powerful reminder 00:34:35.590 --> 00:34:38.469 that even the most boring everyday industries 00:34:38.469 --> 00:34:41.449 can hide the wildest secrets. You look at a carton 00:34:41.449 --> 00:34:43.869 of milk and you think stability. You think wholesome. 00:34:44.070 --> 00:34:46.250 You don't think Cayman Islands mutual fund and 00:34:46.250 --> 00:34:48.329 credit linked notes. But that's exactly where 00:34:48.329 --> 00:34:50.789 the danger lies. We lower our guard with established 00:34:50.789 --> 00:34:53.670 household names. We assume they are safe because 00:34:53.670 --> 00:34:56.090 they are familiar. We assume that because we 00:34:56.090 --> 00:34:58.429 see their logo on a soccer jersey or an F1 car, 00:34:58.610 --> 00:35:01.329 the money must be real. I want to leave our listeners 00:35:01.329 --> 00:35:04.269 with a final provocative thought today. Something 00:35:04.269 --> 00:35:06.989 to chew on. Let's hear it. Parmalat, the financial 00:35:06.989 --> 00:35:09.809 entity, collapsed because of a 14 billion euro 00:35:09.809 --> 00:35:13.869 hole. It was a fraud. It was a lie. And yet the 00:35:13.869 --> 00:35:15.710 products are still on the shelves today. The 00:35:15.710 --> 00:35:18.690 milk is real. The juice is real. The factories 00:35:18.690 --> 00:35:20.349 were real. The trucks were real. The workers 00:35:20.349 --> 00:35:23.449 were real. Exactly. So if a company is built 00:35:23.449 --> 00:35:25.849 on a foundation of financial fraud but makes 00:35:25.849 --> 00:35:28.389 a real, tangible product that people need and 00:35:28.389 --> 00:35:31.489 want, what actually is the value of that company? 00:35:31.769 --> 00:35:34.590 Is it the number on the balance sheet? Or is 00:35:34.590 --> 00:35:36.530 it the physical thing they put in your hand? 00:35:36.710 --> 00:35:38.989 That is the ultimate question, isn't it? The 00:35:38.989 --> 00:35:40.849 difference between the financial economy and 00:35:40.849 --> 00:35:44.010 the real economy. Parmalat proved they can be 00:35:44.010 --> 00:35:47.289 completely, terrifyingly disconnected from one 00:35:47.289 --> 00:35:49.849 another. And here is the scary part of that question. 00:35:50.329 --> 00:35:53.869 How many other stable blue chip giants are currently 00:35:53.869 --> 00:35:56.329 out there betting on their own credit worthiness 00:35:56.329 --> 00:35:58.630 to conjure assets out of thin air right now? 00:35:58.889 --> 00:36:01.510 How many other CFOs are sitting in their offices 00:36:01.510 --> 00:36:04.289 staring at a locked door to the accounting department? 00:36:04.510 --> 00:36:06.429 We might not know until the next crisis hits. 00:36:06.590 --> 00:36:09.130 On that cheery note, go check your fridge. Thanks 00:36:09.130 --> 00:36:11.090 for listening to this deep dive. Goodbye. See 00:36:11.090 --> 00:36:11.570 you next time.