Bank of America Case Over Parmalat Starts

Lawyers asked a federal judge to hold Bank of America Corp. liable for allegedly misrepresenting the value of one of Parmalat Finanziaria SpA’s subsidiaries when it structured a financing transaction in 1999 using two Cayman Island companies.

The lawyers who represented the Cayman Island companies presented opening statements Monday in a civil trial. They said the Charlotte, N.C., bank represented that Parmalat’s Brazilian subsidiary’s stock was worth $300 million when the bank had knowledge that the stock was worth as little as $4 million before the transaction closed.

J. Gregory Taylor, a lawyer for Cayman Islands special-purpose vehicles Food Holdings Ltd. and Dairy Holdings Ltd., said the bank never updated its valuation after proposing a transaction in 1998 and that several senior members of its credit department had rejected the initial deal. He said the deal was pushed through by a former BofA executive in Italy who stood to make $3.75 million personally on the transaction.

Parmalat headquarters in Parma, Italy, in March. The dairy company collapsed into bankruptcy in 2003 and emerged from court in 2005.

However, Joseph B. Tompkins Jr., a lawyer for the bank, said Monday that Bank of America was one of the largest victims of the Parmalat fraud, which filed for bankruptcy in 2003, and that the proposed 1998 transaction and the actual 1999 transaction were vastly different deals. He said the executive improperly diverted money without the bank’s knowledge.

Mr. Taylor, the Cayman Islands companies’ lawyer, also said Bank of America played multiple roles in the transaction and the independent directors of the two Cayman Islands companies had only the bank to rely on for information about the deal.

Under the deal, the special-purpose vehicles would sell notes to investors and use the proceeds to purchase shares in the Brazilian unit. The notes would be repaid following an initial public offering of the Brazilian subsidiary’s shares.

No public offering was undertaken and Parmalat Finanziaria, which had guaranteed the notes, collapsed in 2003 following an accounting scandal.

The Cayman Islands companies, both of which are in liquidation, are seeking more than $500 million in damages. A U.S. district judge in Manhattan is conducting a weeklong bench trial in the matter.

The special-purpose entities are suing the bank for fraud, breach of fiduciary duty, breach of contract and unjust enrichment. Bank of America denies wrongdoing. However, Mr. Tompkins, a lawyer for Bank of America, said the bank wouldn’t have increased its exposure to Parmalat — eventually losing $450 million — if it had known the firm’s true financial picture.