Lead Plaintiff's Opposition to CSFB MSJ 11/13/06 - The ENRON Fraud

The court held that these allegations stated a claim under Rule 10b-5(a) and (c), finding
that, similar to the invoices in the schemes described above, the overstatement of the conversion
right’s value constituted a deception in the deal that allowed Parmalat to falsify its financial
statements:
On the one hand, CSFB’s relinquishment of the conversion right presumably had
some value to Parmalat. On the other hand, if the allegations are given the
interpretation most generous to the plaintiffs, the parties grossly overstated that
value and did so for the purpose of inflating Parmalat’s assets on its financial
statements. The conversion right thus may well have played a role similar to that
of the invoices in the BNL arrangement. The Court is obligated so to assume at
this stage, where reasonable inferences are to be drawn in the plaintiffs’ favor.
Nor can there be any dispute that if this was a deceptive device or contrivance,
then CSFB used it or engaged in a course of business that would operate as a
fraud or deceit.
Parmalat I, 376 F. Supp. 2d. at 505.
Given this Court’s reliance on Parmalat I in the 7/20/06 Order, Lead Plaintiff thinks it
critical to point out that Judge Kaplan issued two subsequent opinions in the case, which upheld
certain other allegations as stating claims under Rule 10b-5(a) and (c). In In re Parmalat Sec.
Litig. (“Parmalat II”), 383 F. Supp. 2d 616 (S.D.N.Y. 2005), the court upheld such claims
against outside lawyers for their role in the Parmalat fraud. The relevant allegations concerned
two bad deals. In the first, when Parmalat was unable to find a legitimate buyer for certain
brands and trademarks it needed to sell, it faked their sale to an uncapitalized shell corporation
(“Newlat”) formed by the law firm. Parmalat booked a receivable for the sale, despite
knowledge that the shell would never pay it. Id. at 620.
In the second scheme, the law firm again created a shell company (“Web Holdings”),
from which Parmalat booked receivables by reporting that it had purchased bonds from the shell.
In reality, Parmalat’s ostensible “loan” to the shell was embezzled by the family of Parmalat’s
CEO. Id. at 625-26. At the same time, the booking of the receivable “made Parmalat appear
healthier than it was.” Id. at 626.
- 28 -