Financial Scandals and the Role of Private Enforcement: The Parmalat Case

62 Pages Posted: 27 May 2005

See all articles by Guido Ferrarini

Guido Ferrarini

University of Genoa - Law Department and Centre for Law and Finance; European Corporate Governance Institute (ECGI); EUSFIL Jean Monnet Center of Excellence on Sustainable Finance and Law

Paolo Giudici

Free University of Bozen, Bolzano - School of Economics and Management; European Corporate Governance Institute (ECGI)

Date Written: May 2005

Abstract

Coming shortly after the Enron and WordCom scams, the Parmalat scandal offers a good opportunity to compare failures on both sides of the Atlantic. In this paper, we start by tracing Parmalat's history and describe the frauds and the criminal proceedings and civil actions that followed the company's collapse both in Italy and the US. We then focus on Parmalat's governance and gatekeepers, and argue that gatekeepers are substantially undeterred in Italy because of poor enforcement rather than legislative black holes. In fact, law on books, in particular the civil law concerning auditors, is even more severe than common law. We subsequently analyse the causes of under-enforcement and the reasons why Parmalat generated litigation in the US rather than Italy. Drawing from economic analysis, we explain the role of private enforcement and consider the benefits of class actions. In this respect, we emphasize the importance of discovery and pleading rules. We also find that the interplay between public and private enforcement is missing in Italy and argue, by way of conclusion, that US securities regulation was transplanted into Continental Europe without sufficient modernisation as to civil procedure in the area of mass claims and complex litigation.

Keywords: corporate fraud, corporate scandals, Enron, Parmalat, directors, board of

JEL Classification: K22, K23, K41, K42

Suggested Citation

Ferrarini, Guido and Giudici, Paolo, Financial Scandals and the Role of Private Enforcement: The Parmalat Case (May 2005). ECGI - Law Working Paper No. 40/2005, Available at SSRN: https://ssrn.com/abstract=730403 or http://dx.doi.org/10.2139/ssrn.730403

Guido Ferrarini

University of Genoa - Law Department and Centre for Law and Finance ( email )

Via Balbi, 22
16126 Genova, 16100
Italy
+39 010 209 9894 (Phone)
+39 010 209 9890 (Fax)

HOME PAGE: http://www.clfge.org

European Corporate Governance Institute (ECGI)

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

HOME PAGE: http://www.ecgi.org

EUSFIL Jean Monnet Center of Excellence on Sustainable Finance and Law

Italy

HOME PAGE: http://www.eusfil.eu

Paolo Giudici (Contact Author)

Free University of Bozen, Bolzano - School of Economics and Management ( email )

Via Sernesi/Sernesistraße 1
39100 Bozen-Bolzano (BZ)
Italy
+39 0471 013140 (Phone)
+39 0471 013009 (Fax)

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

HOME PAGE: http://www.ecgi.org/members_directory/member.php?member_id=120

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