Evidence of destroyed documents at dairy giant.

Global dairy giant Parmalat SpA is in trouble over allegations of document destruction, forged signatures, and fictional finances.

The Italian company's founder. Calisto Tanzi, was arrested on allegation of fraudulent bankruptcy and is under investigation for misappropriating $994 million over the years as well as ordering employees to destroy files to sidetrack investigators, making false statements and abusing privileged financial information. Prosecutors are also investigating two employees of Parmalat's auditor. Gram Thornton, for possible false statements in auditor communications or reports.

The scandal ranks as one of Europe's largest corporate frauds. More than $8 billion is missing, and no one seems to know, or is willing to admit, where the money has gone. Tanzi said no money had been stolen from Parmalat but admitted that the company had fake assets on its balance sheet.

Media sources report that prosecutors have uncovered evidence of falsified accounts and 15 years of fraudulent behavior at Parmalat and its subsidiaries for the dual purposes of biding losses at the company's Latin American milts and funneling money to Tanzi family businesses. Tanzi has admitted to being involved in the alleged fraud, and prosecutors also have named 20 others in their investigation, including former Parmalat Chief Financial Officer Fausto Tonna.

According to investigators, the alleged fraud at Parmalat started in the late 1980s and was revealed when Bank of America issued a statement saying that a $4.8 billion bank account purportedly held by Parmalat subsidiary Bonlat did not exist. After the news broke, prosecutors say Tonna, acting on Tanzi's instructions. ordered two employees in Parmalat's finance department to destroy records pertaining to Bonlat's accounts.

According to The Wall Street Journal, some of the documents remained with auditor Grant Thornton however, and were confiscated the next day by Italy's finance police. Among these documents was a letter dated December 20, 2002, reportedly sent by Grant Thornton. asking for confirmation of the Bank of America account. Prosecutors suspect this letter was never sent, and Bank of America has said the alleged response was fake. Indeed, investigators believe the fraudulent Bank of America response was created in Parmalat's main offices.

For more than a decade, Parmalat executives covered their tracks by deceiving investors, regulators, auditors, bankers, and many of the company's managers. Investigators say this was accomplished in part through forging documents on a scanner, then running them through a fax machine to make them look authentic. Signatures were lifted from old letters and copied onto new ones.

The scandal is resonating around the world but especially in Italy, which is calling for the creation of a much tighter securities-regulatory regime. Regulation of Italian markets is now divided among several agencies.

U.S. securities regulators have filed their own lawsuit, accusing Parmalat of offering debt securities in the United States while engaging in fraud. The Securities and Exchange Commission said the company, acting through its directors and top managers, sold nearly $1.5 billion in notes and bonds to U.S. investors while materially overstating its assets and understating its liabilities.