A Milan judge on Wednesday indicted four international banks on charges related to the 2003 failure of the Parmalat dairy empire in a case that could recoup millions in damages for defrauded investors.
Judge Cesare Tacconi issued the indictments against Citigroup Inc., UBS AG, Deutsche Bank AG and Morgan Stanley for not taking measures that would have prevented the crimes that led to the company's failure - along with 13 bank employees charged with making false statements aimed at rigging the market for Parmalat bonds.
The trial is set to begin Jan. 22.
The case is one of several trying to assign responsibility for the collapse of the dairy company under euro14 billion (US$18 billion) of debt in what remains Europe's largest corporate bankruptcy.
Lawyers representing Parmalat bondholders welcomed the decision. More than 40,000 bondholders have joined the Milan case as civil parties - a move that allows them to seek damages on top of the provision for restitution contained in the charge against the banks themselves.
"This is an important development, because it is the banks that can pay," said lawyer Carlo Federico Grosso.
Grosso calculated that he could seek as a minimum euro280 million (US$374 million) to euro300 million (US$400 million) for the 32,000 bondholders that he represents.
The banks could also potentially be barred from operating in Italy in the future.
Prosecutors have said they believe that individuals charged released false information to the market regarding the bonds because they were acting in concert with the former management of Parmalat. The charges cover five bond sales worth more than euro1.6 billion as late as the summer of 2003 - just before Parmalat's financial web started to unravel.
Three of the banks involved - Morgan Stanley, Citigroup and UBS - defended themselves against wrongdoing. Deutsche Bank did not return calls seeking comment.
Morgan Stanley said it would "vigorously contest this proceeding" on behalf of itself and the two employees charged.
"Morgan Stanley believes that those dealings, and the conduct of the firm and its employees, were entirely correct and that each of those transactions were initiated and carried out after proper due diligence and without any knowledge of the insolvency of Parmalat," the company said in a statement.
Citigroup said in a statement the trial would prove Citibank innocent of all charges "and will confirm that Citigroup was an injured party in the worst bankruptcy in Italy's postwar history."
UBS pledged a "vigorous defense" and said it had no evidence that its employees behaved fraudulently or were aware "of the true state of Parmalat's finances."
In Parmalat's hometown of Parma, a court has been hearing preliminary evidence for nearly a year in proceedings to decide charges against more than 60 former executives, financial advisers and bankers. That case is considered the most important because it alleges fraudulent bankruptcy and, in some cases, criminal association, and carries the highest penalties: up to 15 years in prison.
In another trial in Milan, Parmalat SpA founder Calisto Tanzi and 15 others, including external auditors, face charges of market rigging, providing false accounting information and misleading Italy's stock market regulator, in a trial that opened in September 2005. They could be sentenced to up to five years in jail.