First, Blame the Banks

MARCO VASINI/AP

Parmalat chairman and CEO Enrico Bondi.

In the final months of last year, faced with a hidden but looming bankruptcy, the Italian food-and-dairy conglomerate Parmalat was desperate for money. Officially, it had j3.95 billion in cash on its books; in reality, it had debts of j14 billion and no cash at all. Unless the firm could raise new money fast, it would collapse and the most spectacular alleged fraud in European corporate history would be exposed.

At that point, two of Europe's biggest banks — Switzerland's UBS and Germany's Deutsche Bank — stepped in. Both injected fresh funds into Parmalat — but at a...

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