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Unicredit Sued for Large Italian Derivatives Scam

Feb. 9, 2007 (EIRNS)—Italian industrialist Francesco Saverio Parisi has sued Unicredit, Europe's second largest bank, for fraud and usury, in a move that could unveil a large derivatives scam. Far from being an isolated case, this swindle exposes, albeit with an Italian twist, a process being repeated worldwide, in which large investment banks hoodwink or strong-arm would-be investors (including school systems and municipalities) into investing into convoluted, high-risk derivatives instruments. In this instance, though, the victim has struck back with a devastating low blow—secret videos of the predators softening up the victim for the kill.

Parisi owned Divania, a company with EU65 million (about $100 million) in cash flow, 430 direct employees, 100 temporary workers, and 1,200 outside contractors. Divania was the tenth-largest exporter in Europe and the seventh in U.S., with a 37% rate growth until 2002. Now the company has been shut down, with all employees laid off.

The origin of the catastrophe was a credit swap contract Unicredit forced the industrialist to sign, under the threat of cutting off credit channels to the company. Parisi, however, secretly filmed some of meetings with the bank advisors, showing how the bank manipulated documents and made speculative deals without his consent. As Parisi told the daily La Repubblica on Feb. 8, "It has taken me a year to understand how the bankers destroyed my business. I have denounced them for cheating and usury, and I have called them to be judged before the civil court." The implications of this lawsuit are large, as more than 12,700 firms had similar problems in Italy with swap contracts sold by Unicredit, which dominates the derivatives market in Italy with 90% of the contracts.

Furthermore, evidence collected by Parisi shows that, while officially banks were offering guarantees against speculative risks, managers were ordering their sales operatives to cash in on customers, dumping high risks (losses) on industrial firms. In some videos posted online by La Repubblica, the Unicredit advisor even admits to Parisi that he did not exactly know the nature of the financial products he forced Parisi to sign. Now the Divania owner demands from Unicredit EU276 million in reparations, plus EU61 million in interest, totalling almost $450 million.

According to consumer associations, Italian banks sell derivative contracts produced by international banks on commission. Referring to the 2007 Italease case, Adusbef representatives Antonio Tanza and Fabio Massimo Blasi told the weekly Panorama: "Italian banks were only supposed to catch customers for the swap contracts, then a specialist from an international bank would come from Milan to finalize the agreement. Italian banks only got the commissions on swap products bought from international banks and sold to the customers."

Giuseppe Romano, an independent consultant in Verona, says that the main international banks selling derivatives products in Italy are Merill Lynch, JP Morgan, and Bear Stearns.