Italian dairy company Parmalat Finanziaria SpA sued Grant Thornton International and Deloitte Touche Tohmatsu for $10 billion on Wednesday, saying the auditors overlooked fraud and looting that nearly led to the company's downfall.
The lawsuit, filed in Cook County Circuit Court by the insolvent company's new management, alleges that the company has lost more than $10 billion because of Grant Thornton's and Deloitte's audits and other actions.
Grant Thornton International said it "does not accept that this is a legitimate action and will defend its position vigorously."
Deloitte's branch in Italy issued a statement saying it had not seen the lawsuit, which it nevertheless called "unjustified."
"It was the actions of Deloitte Italy which led to the fraud being uncovered," Deloitte said.
The lawsuit is part of Parmalat bankruptcy administrator Enrico Bondi's campaign to recover money for the company's creditors by suing financial institutions that he alleges helped Parmalat's former executives deceive investors. Bondi has also sued Citigroup Inc., UBS AG and Deutsche Bank AG.
"The massive frauds and looting from Parmalat could not have been committed without the active, coordinated participation of these two accounting giants' offices around the world," the lawsuit says.
Financial institutions have long asserted that they, too, were fooled by fraud at Parmalat and should not be held responsible.
The Parmalat scandal exploded in December when the company's former management acknowledged that it didn't have $5 billion it claimed was in a Bank of America Corp. account. Parmalat then went into bankruptcy protection, and prosecutors have been investigating numerous former officials.
Grant Thornton failed to get adequate confirmation that the $5 billion bank account existed, and Deloitte failed to conduct a "minimum amount of audit diligence" to understand what was going on, according to the lawsuit.
An audit ordered after the scandal broke put the company's debt at about $18 billion -- eight times more than previously claimed.
Deloitte "failed time and time again to report on the frauds that were lying not merely just below the surface, but right in front of its eyes," the lawsuit says.
The lawsuit also claims Grant Thornton helped Parmalat exaggerate its worth through false records.
Grant Thornton "also knew that these fictions were being used to divert billions of dollars from Parmalat into the hands of the Parmalat insiders for their sole benefit and to hide the billions of dollars that Parmalat was losing," the lawsuit contends.
Grant Thornton's Italian branch was Parmalat's chief auditor until 1999, and after that date it continued to audit many key Parmalat subsidiaries, including an offshore entity that falsely claimed to have a multibillion-dollar account. Deloitte & Touche's Italian branch took over as auditor of the company after 1999.
Grant Thornton International expelled its Italian member branch, Grant Thornton SpA, after Parmalat's collapse.