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Parmalat Founder Detained in Milan Prison - 2003-12-28

Prosecutors in Italy are questioning the founder of Italian food group Parmalat, which has been declared insolvent.

Sixty-five-year-old Calisto Tanzi founded and headed Italy's eighth-largest industrial group, until he stepped down as Parmalat's chief executive officer less than two weeks ago.

He was detained on a street late Saturday in Milan, on orders from prosecutors investigating allegations of fraud and misappropriation of funds. The Milan prosecutors questioned Mr. Tanzi for two hours at San Vittore prison in Milan, where the founder of Parmalat spent the night.

The prosecutors are expected to request Monday that Mr. Tanzi's provisional detention be converted into a formal arrest.

Parmalat filed for bankruptcy protection earlier this week, after a massive hole was discovered in its financial accounts. Italian reports say as much as $12 billion may be missing, after more than a decade of false accounting.

Mr. Tanzi is one of about 20 people being investigated for possible fraud. Others include former Parmalat employees and external auditors.

The food giant was declared insolvent Saturday by an Italian court. That move buys the company time to try to put its house in order and avoid complete collapse.

Parmalat has six months to draw up a recovery plan, while it puts thousands of financial creditors on hold.

Meanwhile, the company, which produces dairy and other food products, will continue operations. But the fate of its 35,000 employees in 30 countries remains unclear.

The Italian government, shocked by the Parmalat crisis, issued an emergency decree last Tuesday reforming creditor protection procedures and allowing special commissions to take over and restructure large insolvent companies.

In the case of Parmalat, it named business expert Enrico Bondi to head a special commission that will be responsible for the company's restructuring plan.

Questions have been raised about how Italy's financial regulators could have missed the problems at Parmalat. The scandal has brought calls for an overhaul of the country's regulatory agencies.

Italian Prime Minister Silvio Berlusconi has promised swift action, and Italian reports said the economy minister already had a plan that will give the Italian stock-market regulator, Consob, new and broader powers.