Identify the fraud risk factors that were present during the Parmalat audits. Rank orders these risk factors from the most important to the least important. Be prepared to defend your rank ordering.

Claudio Pessina refused to destroy his computer as his superior had ordered. Prosecutors would later use many of the files on that computer, particularly those files relating to Account 999, to reconstruct key details of the Parmalat fraud and to develop the evidence they needed to file criminal charges against dozens of individuals involved in the fraud.

Three criminal trials were held in Italy for the defendants indicted for having some role in the Parmalat fraud. The most common charges filed against the defendants included false accounting, market rigging, obstructing an investigation of a government agency (Consob), and conspiring to issue false information to investors. Because of Italy's extremely lenient criminal sentencing guidelines, most of the Parmalat defendants avoided prison sentences after being convicted. Under Italian law, prison sentences of two years or less are suspended, while a defendant who receives a sentence of two to three years is placed on probation and required to do community service. If a criminal defendant is lucky enough to be 70 years old or older when he or she is convicted, the individual's sentence is typically waived.

In 2005, Fausto Tonna, Parmalat's former CFO, was convicted and given a 30-month prison sentence, meaning that the prison sentence would be converted to community service. Three years later, in December 2008, Calisto Tanzi was sentenced to 10 years for his role in the Parmalat fraud. Because Tanzi had reached the "lucky" age of 70 one month earlier, it was very unlikely that he would serve that sentence even if the appeal of his conviction was denied. In commenting on Italy's leniency toward individuals convicted of financial crimes, a British journalist questioned what incentive Italian business executives have to be honest. "All right to cheat? In Italy, it seems, you'd be crazy not to."³⁴

Two of the senior Deloitte auditors assigned to the Parmalat engagements received 18-month prison sentences for their roles in the scandal, while the senior member of Parmalat's board of statutory auditors received a 20-month prison sentence. One of the harshest penalties handed down to a criminal defendant in the Parmalat case was a nine-year sentence given to a Grant Thornton partner who had been involved in several of the Parmalat audits during the 1990s. An Italian court also fined Grant Thornton's former Italian affiliate €240,000.

Similar to the civil litigation prompted by other accounting frauds, most of the civil lawsuits stemming from the Parmalat fraud were settled out of court. In January 2007, a Deloitte spokesperson announced that the firm had agreed to pay $149 million to settle a lawsuit filed against it by Parmalat's former bondholders. Ironically, two years later, Judge Kaplan dismissed those same bondholders' claims against Grant Thornton when he ruled that the bondholders' losses were due principally to the misconduct of Parmalat's management rather than any malfeasance by Grant Thornton auditors.

In late 2009, DTT and GTI agreed to pay a total of $15 million to settle lawsuits pending against them by U.S. citizens who had suffered losses on investments in Parmalat securities. An attorney for the plaintiffs observed, "It is very rare that worldwide coordinating audit networks enter into settlements like what we have."35 These settlements only added to the perception that the global organizations of international accounting firms are facing an increased risk of joint and several liability for the wrongdoing of their individual practice units.

Recall that Prime Minister Silvio Berlusconi had refused to intercede on Parmalat's behalf when asked to do so by Calisto Tanzi. When Parmalat faced almost certain bankruptcy in late December 2003, however, Berlusconi publicly stated that he would not allow the iconic company to be liquidated. A government bailout plan and a new management team headed up by the individual originally appointed to serve as Parmalat's bankruptcy administrator saved the company from that fate. The new management team sold off many of Parmalat's foreign subsidiaries and refocused most of the company's resources and strategic initiatives on its line of dair y products. By 2006, the reincarnated Parmalat was posting modest operating profits and had listed its common stock for trading on the Milan Stock Exchange.