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PREDATOR
How an Italian thug looted MGM, brought Credit Lyonnais to its knees,
and made the Pope cry.
DAVID
MCCLINTICK
REPORTER ASSOCIATE ANNE FAIRCLOTH
It was a
"harem," as Florio Fiorini recalls it, and the young women were
kept on the company payroll. There was Carla from Milan, fair, quiet, tall,
so tall that she was never seen walking alongside her sugar daddy, a squat
little man; and Marina from Venice, red hair, green eyes, a Shakespeare
scholar; and Cinzia from Rome, black hair, smoldering, indolent, a chain
smoker. Cinzia alone was paid more than $387,000 over two years, all in
stolen corporate funds, according to a secret report by a former FBI
official.
 They were all
women kept by Giancarlo Parretti, an Italian tycoon of stunning vulgarity
and shrewd charm, the man who had just acquired MGM studios for $1.3
billion. It was early 1991, and Parretti had come a long way in a very
short time from his days as a petty crook in Sicily. A $9 million
mansion in Beverly Hills, a brown
$200,000 Rolls-Royce, a private jet, a rich social life, and a major
presence in Hollywood were all his.
And it had all been so easy: a matter of a few well-placed bribes to senior
officials of a vast global bank, which had subsequently sprung--and sprung
and sprung--for more than $2 billion.
But
already cracks had begun to appear in the gaudy edifice. On January 10, 1991, a six-figure
check to Dustin Hoffman bounced. Lack of funds forced MGM to postpone the
opening of Thelma & Louise. The studio withheld a letter of credit due
Sean Connery until the actor threatened to boycott the premiere of The
Russia House. A month into Parretti's ownership, the studio missed a
payment of bond interest. The company was running a cash flow deficit of,
by one estimate, $1 million a day.
Even
a gala event meant to legitimize Parretti instead sent an ominous signal.
On the evening of Thursday, February 28--four months after acquiring
MGM--Parretti beamed from the head table in the Beverly Hilton Hotel's
International Ballroom; he was being honored with a "distinguished
achievement award" at a glittering black-tie ball given by the
National Council on the Aging, to which he had just promised $500,000. At
Parretti's table were Alan Ladd Jr., Robin Leach, and Carlo Ponti. But the
genuine Hollywood
elite--actors, studio heads, leading agents--were conspicuously absent,
like birds that vanish before an earthquake. They missed the slick color
program, which gushed that Parretti was "worthy of any Hollywood film
script."
And,
in his own way, he was: In less than a year, Parretti's Hollywood edifice would
blow apart with epic force, and a shaky global empire constructed from the
oldest building material known to man--the bribe--would topple. Parretti's
fabled studio would be snatched away. The corrupt bank that had lent him
over $2 billion, the august Credit Lyonnais of Paris, would
shrivel and watch its grand dreams of global influence go up in flames.
Today
the Parretti affair occupies a U.S. grand jury,
two federal prosecutors, and a group of FBI and IRS agents in Los Angeles, who are
weighing evidence of racketeering, criminal securities fraud, tax fraud,
and money laundering by Parretti and others. It is also the focus of
criminal proceedings in France, Italy, Switzerland, and the
state of Delaware. It is the
subject of intense private litigation in the U.S. and Europe, much of
which is being settled quietly out of court, with records sealed at the
insistence of the Credit Lyonnais bank.
And yet, until
now little of the story has been told. Over seven months, through scores of
interviews and the examination of hundreds of documents, many of them
sealed, FORTUNE has pieced together the tale of the rise and fall of Parretti
and the sordid collection of bankers he took down with him. In the annals
of pilgrims with or without money who have come to Hollywood seeking sex,
grandeur, riches, and triumph, the little man who began as a hotel waiter
in Italy would wreak
more havoc in less time than anyone before. In the resulting debacle, the
biggest banking swindle ever would fuse with the biggest Hollywood swindle ever,
in a story of elegant skullduggery, bald greed, and breathtaking
opportunism.
As
the silent co-star of the Parretti drama, the state-owned Credit Lyonnais is
desperately trying to avert a public scandal that could disrupt its current
efforts to sell the MGM studio--one of the bank's limited chances to
recover some of its losses.
A
Credit Lyonnais spokesman, asked to respond to allegations of bribery, said
that "in no case have they been shown in court to have a shred of
truth."
 Jay Coggan, an
attorney for Giancarlo Parretti, denies that Parretti bribed anyone or
misappropriated funds. "He did not bribe anybody. He gave gifts, which
had little value. The report that mentions women is an accumulation of
misinformation."
California
Superior Court Judge Irving Shimer, sifting through the wreckage, would
observe in court that the French bankers who lent Parretti and other film
executives billions weren't "interested in making movies. They were
interested in getting girls on the yacht...That's why bankers come to Hollywood--lots and
lots of pretty girls."
Perhaps
it was that simple. More likely, it was Parretti's money that served to
recruit as supporting actors in the Credit Lyonnais drama not just the
usual suspects--rogues and bottom feeders from Los Angeles, New York, Rome,
and Paris--but also some of the best-dressed bankers, best-paid lawyers,
best-wired politicos, and most ravishing women in the world.
 From the
private screening room of the Vatican, where he talked Pope John Paul II
into sitting through the screening of a movie (the Pontiff was deeply
moved), to the grand ballroom of the Beverly Wilshire Hotel, where he
offered the helm of MGM to former President Ronald Reagan (he declined), to
the Parretti mansion in Beverly Hills, where he tried to lure Meryl Streep
into his bed (she laughed him out of the room), Parretti never feared
rejection or even jail in pursuit of the big score. The extraordinary cast
of his misadventures includes:
--Florio
Fiorini, Parretti's partner and the financial brains behind the MGM deal.
Fiorini, currently behind bars at the Champ Dollon prison in Geneva, has figured
in every major financial and political scandal in Italy in the past
two decades--and that's saying a lot. He learned political bribery and
global money laundering at the knees of the notorious Vatican-connected Italian
bankers Michele Sindona and Roberto Calvi, whose violent deaths in the wake
of banking scandals in the 1970s and 1980s remain unsolved.
--Bettino
Craxi, the former Prime Minister of Italy and Socialist Party chairman; and
Gianni DeMichelis, the former Italian Foreign Minister, who spent his
nights in discotheques. According to Fiorini, Craxi and DeMichelis took
bribes from Parretti and Fiorini to induce the French government and its
bank to back the Italians' purchase of MGM.
--Georges
Vigon, former paratrooper of the French Foreign Legion, wounded hero of the
Algerian war, accomplished chess player, and head of European lending for
Credit Lyonnais before his
"retirement." Vigon and other bank officers accepted bribes from
Parretti--securities, works of art, South Sea vacations--in
return for huge loans.
--Alan
Ladd Jr., the veteran movie executive who worked for Parretti and praised
him publicly as an important new force in Hollywood, only weeks before
turning on him and taking his job in return for a $1 million bonus from
Credit Lyonnais.
--Dino
De Laurentiis, the Italian producer who introduced Parretti around Hollywood and whose
daughter, the producer Raffaella De Laurentiis, punched Parretti in the
groin when he ran his hand up her thigh at a Beverly
Hills dinner party.
--Frans
Afman, the urbane head of entertainment loans at Credit Lyonnais's Dutch
branch. By accepting "fees," confidential information, and at
least one cash bribe from an array of competing motion picture clients to
whom he was separately lending money, Afman gave new pungency to the idea
of conflict of interest.
 By the time
Giancarlo Parretti made his fateful alliance with the bankers of Credit Lyonnais, he had
accumulated a considerable fortune, a few key friends in high places--and
an astonishing string of bankruptcies, indictments, and fraud convictions.
Raised
on an olive farm 50 miles north of Rome near Orvieto,
a small city famous for its striking cathedral, Parretti went to sea as a
young man, working as a waiter aboard the Queen Elizabeth. An eager
employee, he befriended a passenger named Graziano Verzotto, a powerful
tycoon and political boss from Sicily. Verzotto
hired him to work as a waiter and maitre d' at one of his hotels, the Villa
Politi in the Sicilian city of Siracusa.
It
wasn't long before Parretti was running the hotel and had become the
protege and confidant of Verzotto. Giancarlo Parretti had met his first
angel. In 1975 an Italian government investigation revealed that Verzotto
had taken bribes to run money for Michele Sindona, the Mafia's notorious
banker. Verzotto was shot in the arm and hospitalized. It was alleged that
he had arranged a fake assassination attempt to delay prosecution.
Giancarlo Parretti spent time at his bedside.
Once
Verzotto recovered, he fled Italy, and his wife
named Parretti to manage his business interests, which included the
Siracusa soccer team. Parretti paid the team every week from a bag full of
cash. No one knew where the money came from. The team eventually went
bankrupt; years later the ensuing investigation would produce an indictment
for fraud.
Early
on, Parretti was doing more than just bankrupting a soccer team; he was
building a rap sheet--for violating public securities laws, conspiring to
commit bodily harm, issuing bad checks--though he never served significant
time. In 1976 he formed a chain of newspapers called Il Diario in several
Italian cities. Eventually the newspapers, too, would go bankrupt,
resulting in a fraud conviction, but not before Parretti, as publisher,
formed a close relationship with two brothers who were prominent Socialist
Party activists, Gianni and Cesare DeMichelis. The relationship would be
crucial later, when Parretti was trying to borrow over a billion dollars
and Gianni DeMichelis had risen to Foreign Minister of Italy.
The
fraud indictments kept coming. In 1984, Parretti was indicted for fraud in
the bankruptcy of the hotel company in Sicily. That same
year he was prosecuted in Sicily for forging a
savings bond. In 1986 he gained control of a Socialist newspaper in Paris,
Le Matin, which also went bankrupt a year later.
Though
few people are aware of it even today, Credit Lyonnais by the
mid-1980s was on its way to becoming the world's leading lender to Hollywood studios. Its
point man in that effort was Frans Afman, seemingly a banker born for
Giancarlo Parretti. Afman loved to hang out in Hollywood. He stayed at
the Bel Age Hotel off Sunset Boulevard, held court at restaurants such as
Le Dome and Spago, read film scripts, met with Sylvester Stallone and
Christopher Reeve, and grew close to Dino De Laurentiis.
Afman treated
his clients lavishly. On occasion he would advance millions without the
required documentation or collateral. To keep the funds flowing, some
clients paid Afman money on the side. Bruce McNall, who owned Gladden
Entertainment, handed Afman an envelope full of U.S. currency
aboard a yacht at the Cannes Film Festival in 1983, according to a
declaration filed by an eyewitness and former McNall employee in California
Superior Court in Los Angeles--a charge
Afman denies. McNall also provided Afman and his family with a Malibu beach house
in the summers, most expenses paid. Carolco Pictures paid Afman a
"consulting fee" of $225,000 a year. Afman became a director of
several client companies, giving him access to confidential information and
deliberations within companies that were competing with each other.
Founded
in 1863 and nationalized after World War II, Credit Lyonnais had been
among the world's largest banks for decades. Its opulent headquarters, on
the Boulevard des Italiens near the opera, loomed for years as the largest
nongovernment building in Paris. But it
sought more than size; it sought worldwide prestige and power.
Frans
Afman was ready to help. Between 1981 and 1988, Afman's lending to Hollywood increased
sixfold, to around $775 million. In addition to De Laurentiis, his clients
included Alexander Salkind, who had made Superman; Hemdale Films, which had
made the Academy Award-winning Platoon and the megahit The Terminator;
Carolco Pictures, which had made some of the Rambo movies; and Gladden
Entertainment, which made The Fabulous Baker Boys. (On Oscar night, 1987,
the producer of Platoon, accepting the Academy Award for best picture,
thanked Afman by name for "having the money in the Philippine jungle
when I really needed it.")
Afman
actually reported to the Dutch branch of Credit Lyonnais, called
Credit Lyonnais Bank Nederland (CLBN), which had a checkered past,
including allegations of laundering money for drug kingpins. In 1981,
Credit Lyonnais appointed
Georges Vigon, a rising star in its senior echelons, to straighten out the
Dutch. One of Vigon's first moves was to create a new division of the bank
exclusively for the movie loans. He named Frans Afman to run it. Vigon was
called "formidable" and "remarkable" by his superiors;
no one dreamed that his appointment was a critical step in the bank's
eventual implosion.
While
Credit Lyonnais was building
its presence in Hollywood, Giancarlo
Parretti was building his fortune in Europe. In the
mid-1980s he gained control of a big Italian insurance company, then a
Spanish hotel and travel company called Melia International, and finally a
real estate firm called Renta Immobiliaria. Along the way he made a crucial
alliance--with Florio Fiorini, a chubby, good-humored Tuscan businessman.
"Parretti
was wearing a tie the way the charcoal merchants wear them," Florio
Fiorini said years later of their first meeting, describing an
unfashionably wide black necktie that Parretti wore tucked into his pants.
If Parretti was a deceptively comic figure, an "Italian Ralph
Kramden," as someone in Hollywood later called
him, Fiorini was his foil--an urbane kibitzer and occasional restraining
influence. "Two traveling rug merchants," an Italian editor said.
They were made for each other. Fiorini was more than just a businessman. By
the mid-1980s he had secretly become one of the biggest, if not the
biggest, political briber and money launderer in Europe, having learned
those skills from the master criminals Roberto Calvi and Michele Sindona.
"Fiorini is an expert at barter," Carlo De Benedetti, the
chairman of Olivetti, told the Sunday Times of London. "Fiorini can
change a bird into a cow and then into a motorbike." (In early June,
an Italian appeals court upheld De Benedetti's criminal conviction for
contributing to the bankruptcy of Banco Ambrosiano, which also tainted
Fiorini.)
The
two hustlers--Parretti and Fiorini--set about creating a vast nebula of
shell holding companies that would obscure the ownership of all their
acquisitions to come. Fiorini's principal vehicle, Sasea, eventually had
more than 300 subsidiaries all over the world, many of them entwined with
Parretti's holding companies, which were ultimately controlled by a shadowy
entity called Comfinance Panama.
The
two partners got their first taste of the movie business in 1986, a very
long way from Hollywood. A Roman
Catholic organization Parretti had worked with in Rome asked him to
oversee the production of Bernadette, a motion picture based on the life of
a peasant girl who saw visions of the Virgin Mary in the French town of Lourdes in the 1850s,
and was sanctified. Parretti loved it, but Fiorini was uncomfortable making
a religious film. He insisted that Parretti sell their interest in
Bernadette to the movie's distributor--"for three lire" if
necessary--and remove their name from it. Instead, Parretti decided he
wanted to buy the distributor, the Cannon Group, which was run by two
former Israeli paratroopers, Menahem Golan and Yoram Globus. Cannon, based
in Los Angeles and traded on
the New York Stock
Exchange, was the largest movie theater operator in Europe and made
ninja and vengeance films with actors like Charles Bronson and Chuck
Norris.
Wearing his
"horrible wide tie," a bubbly Parretti showed Cannon's balance
sheet to Fiorini over breakfast at the Inter-Continental Hotel in Paris in early
1987. "Parretti, may God strike you dead!" Fiorini exclaimed.
"I send you to sell a movie and you come back wanting to buy a whole
studio with a billion dollars in debt!"
The
Cannon Group's debt was actually a little under a billion, but still the
company was on the verge of bankruptcy. Its accountants were refusing to
certify its books without a covering letter raising red flags. The company
was being investigated by the SEC for making fraudulent financial
statements and raising $339 million under false pretenses. Golan and Globus
were amenable to a takeover; they saw it as a way to save Cannon.
Parretti
convinced Fiorini that they could sell some of Cannon's assets and get
control of its more valuable properties. But they would need the approval
of Cannon's principal bank. The bank was the Dutch branch of Credit Lyonnais.
As
it happened, the Cannes Film Festival was about to open. Golan and Globus
invited Parretti to meet their banker, Frans Afman, at their lavish corner
suite in the Carlton Hotel at 8 a.m., Saturday,
May 9, the third day of the festival.
As
soon as the elegantly dressed banker walked through the door, according to
sources who witnessed the scene, Parretti pointed his finger at him and
shouted across the room: "You, Afman!"
"Yes,"
replied Afman, taken aback.
"How
much money you make at that bank?" Parretti shouted in heavily
accented English.
Afman
hesitated. There were other people in the suite.
"I
double it!" Parretti shouted.
Afman
looked at Globus. Was this a joke?
"Not
enough?" Parretti continued. "I triple it! I triple your
salary--if you come into my company."
"Wait
a moment, Mr. Parretti," Afman retorted quietly, settling with his
assistant Ria Jankie on a sofa across from Parretti. "I'm not here to
discuss my salary with the bank. I'm here to discuss your possible
investment in Cannon." But Parretti wouldn't relent. Finally Afman
said, "I'd have to give up my job at the Credit Lyonnais."
Parretti beamed and replied: "That wouldn't be necessary--on the
contrary."
Only
then did Afman grasp what Parretti was offering--a bribe of triple the
banker's salary if he went to work secretly for Parretti while still
running entertainment lending at CLBN. Frans Afman didn't know when he had
been so repelled by another human being. It wasn't the bribe proposal;
Afman had been bought before. It was Parretti's manner--shouting a bribe
offer across a crowded room--that offended him. If Parretti's brazenness
was repulsive, his vulgarity was worse. As they talked, Parretti began
gazing at Ria Jankie, an attractive and thoroughly professional business
woman, in an overtly lascivious way while gesturing at his genitals. Jankie
was disgusted, as was Afman. They looked at each other with chagrin. Should
they leave? They stayed. Yoram Globus later apologized to Jankie.
Afman
was unimpressed by Parretti's proposal for refinancing Cannon, even after
Parretti had expressed it in French as well as English and sketched several
charts. "This is not a bankable proposition," Afman told
Parretti. "There is nothing I can do."
Offended,
Parretti rose to his feet. "I'm going to take my private plane and fly
to Rotterdam to meet your
chairman. You may lose your job."
"You
won't need to go to Rotterdam," Afman
replied, with false confidence. "Georges Vigon is here." CLBN
head Georges Vigon was on holiday in nearby Nice. Vigon drove to Cannes the next day
and met with Giancarlo Parretti over lunch on the sun-baked terrace of the
Hotel Majestic. Yoram Globus joined the meeting. Florio Fiorini flew in.
Frans Afman was nowhere to be seen. Parretti's words proved prophetic--it
was the beginning of the end for Afman's career at the bank.
Vigon was,
Fiorini recalls, "smoking like a Turk" as they talked. A short,
barrel-chested, ex-Foreign Legion paratrooper, he had once killed an
Algerian rebel with the rebel's own bayonet after the Algerian's gun
jammed. His hands moved constantly--not nervously but with the swift grace
of a prestidigitator. Vigon extracted the soft center of a piece of French
bread, compressed pieces of it into cubes, took out a pen, marked them like
dice, and played with them as he listened to Parretti's proposals for the
Cannon Group. Movie people from all over the world stopped at the table to
pay their respects. Parretti flirted with starlets. Globus departed. By the
end of the afternoon, Parretti, Fiorini, and Vigon had struck the outlines
of a deal.
After
a single meeting, the president of the Dutch subsidiary of one of the
world's largest banks had agreed, against the advice of his principal loan
officer, to turn over control of the Cannon Group, a billion-dollar motion
picture company in dire difficulty, to two men he had never before met, and
whose movie experience was limited to the financing of a minor film about a
minor saint.
Then,
things got weird.
Back
in Rotterdam after the Cannes meeting,
Georges Vigon ordered a background investigation. The report, delivered on July 22, 1987, detailed the
true extent of Parretti's criminal rap sheet. Actually, a hint of
Parretti's background had appeared a month earlier in the Cannon Group's
first filing with the SEC about Parretti's impending takeover. As required
by law, Cannon dutifully reported that Parretti was "subject to a
criminal proceeding pending in Naples-Syracuse, Italy," and
the Los Angeles Times and the Wall Street Journal reported the matter.
The
bank received a separate report on Fiorini's involvement in bank scandals
and political bribery. Undeterred, Vigon and his colleagues okayed Parretti
and Fiorini's takeover of the Cannon Group. The bank lent them $250
million. Parretti was required to use some of the money to pay down
Cannon's old debt, but Parretti and Fiorini still had plenty of money to
work with.
To
show his appreciation, Parretti began giving Vigon and other CLBN bankers
works of art--color drawings purportedly by Picasso and Miro, apparently
worth hundreds of thousands of dollars. And he flew Georges Vigon and his
family aboard a private jet to Bora Bora in the South
Pacific for a vacation.
The
Dutch central bank, which regulates Netherlands banks in much the way the
Federal Reserve does U.S. banks, knew nothing of the conflicts of interest
at CLBN, nothing of Parretti's attempted bribe of Frans Afman at the Cannes
Film Festival, nothing of Parretti's and Fiorini's reputations, and nothing
of Parretti's "gifts" to Georges Vigon. The central bank,
however, had by early 1988 noticed the sharp rise in CLBN's loans to Hollywood and to
Parretti and Fiorini, and expressed its concern about the concentration of
loans with a few borrowers in a single industry and about an apparent
imbalance of debt over equity among the borrowers.
Georges
Vigon sprang into action--not by demanding that delinquent clients pay off
overdue loans but by funneling new funds their way, often through shell
corporations set up to cloud the money trail. It was something he was an
old hand at; he had earlier helped Cannon conceal bad loans in just that
fashion.
Even
as he papered over bad loans, Vigon continued to shovel money to new Hollywood clients.
According to papers filed in California Superior Court, he put $30 million
of Credit Lyonnais's money into
a small movie company called Film Accord, with offices in Los Angeles and Montreal. Some $13.5
million of the money was spent to make the film Honor Bound, starring Tom
Skerritt, which proved unreleasable. Another $550,000 was spent on a yacht,
kept in the Caribbean, called The
Iliad and The Odyssey. None of the financing was covered by loan documents
until much later. According to Film Accord's former senior vice president
for finance, Anthony Friscia, Film Accord funneled $1.8 million in
kickbacks to Vigon and other CLBN officers through a Canadian bank account.
Partly
as a result of his impolitic clash with Parretti, Frans Afman, who had
built the entertainment loan business, had been forced to resign. He became
a consultant to the bank, dealing only with a few of his old clients. The
Dutch central bank, which had learned Afman was on the payroll of the
Cannon Group, endorsed the termination of "this double function which,
in our opinion, is undesirable."
With
his problem loans hidden and CLBN seemingly prospering, Vigon was promoted
to Paris to head all
European lending (including CLBN, and by extension the Hollywood lending).
From Credit Lyonnais's magisterial
headquarters on the Boulevard des Italiens, the man who had sanctioned
Afman's conflicts of interest and who was himself now taking artwork and South Seas vacations
from Giancarlo Parretti, suddenly had vastly broader responsibilities. The
cancer had spread from a limb to the torso of one of the world's largest
financial institutions.
But
at Credit Lyonnais, the supply
of executives willing to be corrupted proved ample. Credit Lyonnais named
Jean-Jacques Brutschi, another rising star, to replace Vigon at CLBN.
Replacing Afman was one Jacques Griffault, who had headed Credit Lyonnais's branch in Milan, where he had
known Florio Fiorini. Brutschi and Griffault quickly became intimates of
Parretti, who kept the expensive gifts coming.
For his part,
Vigon took to the Hollywood life. He read
the script for Honor Bound and decreed that it be made. He also, in a
particularly brazen move, suggested that Parretti further nail down his
relationship with Credit Lyonnais by hiring Vigon's boss in Paris, Jean
Naville, who had been in charge of the bank's lending for fully one-third
of the world--Europe, the Middle East, and Africa. Naville left the bank to
become Parretti's "senior financial consultant," negotiating with
his recent subordinates Vigon, Brutschi, and Griffault. Parretti treated
Naville like a serf.
Loans
weren't the only service CLBN provided to Parretti. Ten months after it
learned of his criminal background, a CLBN officer wrote an effusive
"To Whom It May Concern" letter of recommendation. "Since
the commencement of our relationship with him...we have come to know Mr.
Parretti as a capable and astute businessman. We have enjoyed an excellent
business relationship with the client and value this relationship highly.
We kindly recommend Mr. Parretti...The above information is given in strict
confidence..."
By
the late Eighties, Credit Lyonnais had become the largest lender in
Hollywood--but its film portfolio had become a massive Ponzi-like scheme,
with lavish new loans to disreputable borrowers paying off uncollectible
old loans as a means of keeping at bay Dutch and French banking regulators,
and perpetuating a gravy train of bribes to bank officers.
Flush
with Credit Lyonnais cash,
Giancarlo Parretti in late 1988 moved his base of operations to Los Angeles, where he
indulged himself like the proverbial Roman emperor. Parretti took over Dino
De Laurentiis's Wilshire Boulevard office,
lavish even by Beverly Hills standards. He
paid $200,000 of Credit Lyonnais money for a
brown Rolls-Royce identical to the one De Laurentiis drove. He paid $9
million of Credit Lyonnais money for a
mansion in a particularly grand section of Beverly
Hills north of Sunset Boulevard, at the
foot of Coldwater Canyon. The
opulently landscaped two-acre property, shielded from the street by trees
and shrubs, included a two-story house with seven bedrooms, an Olympic-size
swimming pool with a two-bedroom guesthouse, and a tennis court that ran
north and south to minimize sun in players' eyes.
Parretti
installed his wife, Maria Cecconi, and his children, Valentina, Evelyn, and
Mauro, in the mansion, along with a lot of expensive-looking art. At Cannon,
meanwhile, the man whose lewd behavior had so offended people in Cannes the previous
year put three young Italian women under contract as "actresses"
to service him sexually. In addition to payroll checks to Carla, Marina,
and Cinzia (who had once been second runner-up in the Miss Universe
pageant), Parretti apparently gave the women jewelry worth up to $1
million. He promised them acting lessons. According to a memorandum
prepared later by Lawrence Lawler, a former special agent in charge of the FBI
in Los Angeles, and now
filed under a court-ordered seal of confidentiality in California Superior
Court, the "mistresses" did little or no film work.
He
launched a $150 million bid to acquire Pathe Cinema, the venerable French
motion picture company, and went so far as to change the name of the Cannon
Group to Pathe Communications Corp. in anticipation. And he hired Alan Ladd
Jr., an experienced studio executive and son of the late movie star, to
make pictures for Pathe Communications. Ladd also joined the board of
directors.
In
Hollywood, all this
gave Parretti instant cachet. He invited le tout Hollywood to his
mansion and they came. The entertaining culminated just before Christmas 1988
with a festive party for 200. Among the guests, according to a later
written declaration of Menahem Golan, were Georges Vigon and Jacques
Griffault, flown in with their families from Europe to California by Parretti.
During
the party, Parretti took Vigon and Griffault, together with Florio Fiorini,
Menahem Golan, and a few others, into the seclusion of his library. There
he presented each banker with a certificate for 200,000 shares of stock in
a small, publicly traded motion picture company that Parretti controlled,
called 21st Century Distribution Corp. He also gave them certificates for
200,000 of 21st Century's Class A warrants and 200,000 of its Class B
warrants, convertible under certain conditions into common stock, for a
potential total of 600,000 common shares. Twenty-First Century, which had
recently emerged from bankruptcy, is "going to become a big company in
the motion picture business," Parretti told the bankers, according to
Golan's declaration. Its stock "might soon be selling at $30 or $40 a
share." Based on those numbers, the inescapable inference was that
each gift had a potential value of between $18 million and $24 million.
Even if that possibility were discounted, the shares of 21st Century were
then being quoted over the counter at 50 cents bid, $1 asked, giving the
stock, excluding the warrants, an indicated value of between $100,000 and
$200,000.
The
gifts made Vigon and Griffault among the largest individual shareholders of
21st Century Distribution. Two months later Pathe acquired 21st Century and
made plans to guarantee $50 million in credit for the small company. That
meant that 21st Century became a client of Credit Lyonnais. Messrs.
Vigon and Griffault, by loaning money to Pathe, were in a position to line
their own pockets.
Parretti sent
the same "gift" to CLBN President Jean-Jacques Brutschi, who had
been unable to travel to California for the
party. The morning after bribing the bankers, Parretti flew Vigon to Bora Bora again.
Before
year-end, Pathe's credit line was extended. CLBN's loans to Pathe,
Parretti, Fiorini, and related corporate entities doubled in the following
year, from $600 million to over $1 billion.
In
later depositions, now under confidential seal in Los Angeles, Griffault
and Brutschi claimed they didn't realize the 21st Century securities had
any value and said they accepted them to avoid offending Parretti.
Griffault claimed in his deposition that he didn't attend the party, but
received his shares by mail. Credit Lyonnais has never
made Georges Vigon available for testimony in lawsuits. When FORTUNE tried
to interview him for this story, his wife said he was not available.
Whether
in Beverly Hills or New York, Paris or Rome, Giancarlo
Parretti was rarely out of the entertainment headlines in the early months
of 1989. "Parretti is very appealing. He's going to be a very big
player in our industry," Alan Ladd Jr. told the Wall Street Journal.
Parretti announced that Pathe Communications had earned a profit for 1988
against a loss the previous year. He announced plans to bail Dino De
Laurentiis out of bankruptcy. He announced he would buy New World
Entertainment, a company that produced TV shows and B movies. He announced
he would take over Kings Road Entertainment, which was known for The Big
Easy. And most spectacular of all, he elaborated on plans to purchase
control of Pathe Cinema, the legendary French movie company and a shrine to
French cinema, whose library contained classics by French directors as well
as by the Italians Federico Fellini and Luchino Visconti. Parretti said he
would receive investments from the British media tycoon Robert Maxwell and
the Italian television magnate Silvio Berlusconi, and would triple Pathe
Cinema's size and filmmaking capacity and merge it with Pathe
Communications.
No
one was too exalted to meet with Parretti or take his call as he jetted
between Europe and the U.S. aboard his
Credit Lyonnais-financed private jet. In New York he conferred
with CBS Chairman William Paley and Warner Communications head Steve Ross
and pledged a gift of $2.4 million to the Museum of Broadcasting, which Paley
had founded. Parretti asked that the museum name its library the Florio
Fiorini and Giancarlo Parretti Library.
In
Rome, Parretti
showed Bernadette, the movie he had produced in 1986 about the girl who
became a saint, to Pope John Paul II in the Pontiff's private screening
room in the Vatican. The Pope sat
in the first row. Parretti sat in the second row with Menahem Golan and
Yoram Globus. When the movie ended, the Pope, tears running down his face,
didn't move for several minutes.
And
then, like a spent Roman candle, Parretti began to sputter. He was outbid
for New World entertainment and Kings Road
Entertainment. The De Laurentiis deal fell through. Pathe Communications
posted a loss for the second quarter of 1989. Parretti's bid for Pathe
Cinema was tentatively blocked by the French government, which didn't want
a French shrine to be owned by an Italian of dubious background. The Wall
Street Journal caught Parretti lying about his criminal background in Italy, and the SEC
forced him to put a longer disclosure statement in Pathe's filings. Even
the new statement fell short of candor; it failed to mention that Parretti
had been charged with "falsifying balance sheets" in the collapse
of his Il Diario newspapers.
Concerned about
the burgeoning loans, the Dutch central bank in the spring of 1989 imposed
a lending limit on CLBN of $200 million per client or related group of clients.
The bank's exposure to the Parretti-Fiorini group already exceeded $900
million, but instead of reducing that exposure, the bank schemed with
Fiorini and Parretti to expand the exposure while making it appear it was
shrinking. Fiorini, in a statement written later, called the schemes
"window dressing."
In
one such ruse, the bank and the borrowers set out to make it appear that
Pathe Communications had reduced its indebtedness to the bank by $184
million. A company called Cinema V, purportedly controlled by Italian media
mogul Silvio Berlusconi and newly incorporated in the Netherlands, purchased a
group of Pathe's movie theaters in England and Holland for $184
million. Pathe used the money to pay down the combined Parretti-Fiorini
debt at CLBN. What the central bank wasn't told was that Cinema V was a
shell created by Fiorini, with the knowledge not only of Jacques Griffault
and Jean-Jacques Brutschi of CLBN but also of Georges Vigon of Credit Lyonnais in Paris, for the sole
purpose of deceiving the Dutch central bank. The $184 million wasn't from
Silvio Berlusconi at all--in fact he may not have known his name was used
in the transaction. It had been put up by CLBN. The central bank wasn't
told that Parretti and Credit Lyonnais controlled
both ends of the transaction, or that the Parretti-Fiorini loan portfolio
was still expanding.
Frans
Afman no longer headed entertainment lending, but as a consultant still
serviced several of his old clients. He tried to tune out new information
about Parretti and Fiorini. He felt their relationship with the bank was
out of control and sure to attract attention sooner or later from U.S. law
enforcement. Whenever he was in the U.S., he felt
queasy; he expected FBI agents or SEC investigators with subpoenas to knock
at his door.
At
a screening one evening at the Writers Guild on Wilshire Boulevard, Afman
was approached by CLBN's manager in charge of the Parretti account, a
nervous young man named Dirk van Swaay.
"I
need to talk to you very urgently," van Swaay whispered. "I need
your advice. It's about Parretti."
"Sorry,
I don't want to talk about him."
"But
I need to tell you something."
"No,
I don't want to hear it," Afman said, trying to walk away.
"We're
now in over a billion dollars!" van Swaay shouted, dashing after
Afman.
The
28-page fax from the European private detective to the head of an
independent Hollywood film company,
in August 1989, was headed STRICTLY PERSONAL AND CONFIDENTIAL. Two years
after Credit Lyonnais had received its background report on Giancarlo
Parretti, and then proceeded to loan him hundreds of millions of dollars, a
few Hollywood people whose business Parretti was soliciting were ordering
their own briefings from private investigators in France and Italy.
In
addition to detailing Parretti's and Fiorini's checkered backgrounds, the
new report speculated about the origins of Parretti's funds. "One
source believes that the money comes from Italian Socialists with access to
government funds, or that the cash represents some of the proceeds of the
Banco Ambrosiano affair," the detective stated. "There have also
been persistent reports (originating from officials in the Italian
government and former associates of Parretti) that he has Sicilian Mafia
links and has been involved in money laundering."
 The recipient
of the report gratefully wired the detective his $25,000 fee. It seemed a
small price to pay for avoiding entanglements with Parretti and Fiorini.
By
early 1990, Parretti had been eyeing MGM for more than a year. He had found
the perfect centerpiece for the global empire he aspired to build. Founded
in the Twenties, symbol of Hollywood's Golden Age,
once home to "more stars than there are in Heaven," MGM had
produced Gone With the Wind, The Wizard of Oz, and Singin' in the Rain. But
MGM's owner since the late Sixties, Kirk Kerkorian, had never made the
studio pay the way he wanted it to. So in 1986, Kerkorian sold the rights
to the MGM library, and the fabled 44-acre Culver City lot to Ted
Turner. By the end of the decade, Kerkorian was looking to sell the rest.
And Giancarlo Parretti was looking to buy.
On
March 6, Parretti's Pathe Communications offered Kerkorian $1.25 billion
for MGM. Kerkorian accepted and gave Parretti and Fiorini, four months to
come up with the money. They would have to pay Kerkorian nonrefundable
deposits of $50 million a month until the deal was closed.
At
MGM, people were thrilled by the prospect of new ownership after years of
upheaval. "I think the world of Parretti," said Jeffrey Barbakow,
the studio's chairman. "He's extremely bright, and he's a global
thinker."
But
where would the global thinker raise $1.25 billion? Parretti and Fiorini
had already gone through much of the $1 billion-plus that Credit Lyonnais
had loaned them. Steve Ross, chairman of the newly formed Time Warner,
decided to advance Parretti $650 million--a bit more than half the purchase
price for MGM--in exchange for the rights to distribute the studio's
television and video offerings and the movies not owned by Turner. But Ross
conditioned his offer on Parretti's raising the rest of the money in the
form of equity rather than debt. Both Hollywood and Wall
Street were skeptical; while Credit Lyonnais could supply
endless loans, it couldn't create investors.
The
ultimate responsibility for the bank's role lay with its Paris-based
chairman and chief executive officer, Jean-Yves Haberer, an appointee of
President Francois Mitterrand. Mitterrand had given Haberer a blank check
to transform the state-owned Credit Lyonnais into the
French equivalent of Germany's
all-powerful Deutsche Bank, competing at the highest levels of global
finance--a cultural force, more than just a bank.
Jean-Yves
Haberer was more than just a banker. He was also a published fiction
writer, an art connoisseur, an Alpine hiker. A graduate of France's most
prestigious graduate school, the Ecole National d'Administration, or ENA,
he had headed Paribas, another large French bank, and had run the French
Treasury. Upon taking command at Credit Lyonnais, Haberer
installed a unique "floating floor" containing his office, a
luxurious dining room, a sitting room, and a full bathroom, insulated from
the vibrations of the street, the Metro, and the real world.
As
chief executive, Jean-Yves Haberer had been actively involved in his Dutch
subsidiary's financing of Giancarlo Parretti and Florio Fiorini. Haberer
was on the CLBN supervisory board. In fact, one of his first important
decisions after he took the helm of Credit Lyonnais had been to
approve CLBN's financing of Parretti's attempted acquisition of France's Pathe
Cinema. And when the Dutch central bank expressed alarm that CLBN was
loaning too much money to Parretti and Fiorini and their myriad
corporations, Haberer tried to paint Parretti and Fiorini as separate
borrowers, independent of each other, individuals who should be analyzed
separately. The central bank rejected that reasoning. To resolve the
dispute, Haberer had the parent Credit Lyonnais issue a guarantee
of Parretti and Fiorini's CLBN obligations and at the same time promised to
reduce those obligations. As an example of such reductions already
implemented, he cited the bogus transaction involving the $184 million
"purchase" of a group of Pathe Communications' movie
theaters--the one Fiorini secretly called "window dressing"--an
explicit ruse to make it appear debt was being erased when it was not. In
later sworn testimony now under seal, Haberer said he had been unaware the
transaction was phony.
The
Dutch central bank had broader concerns. In another letter to Haberer,
headed STRICTLY CONFIDENTIAL, the central bank implored him to heed rumors
that Parretti and Fiorini's major corporate entities were being used to
launder "dirty money." Haberer did not reply, and the Dutch
central bank informed the French central bank and its enforcement branch,
the Commission Bancaire.
Then,
in March 1990, a court in Naples convicted
Giancarlo Parretti of fraud in connection with the bankruptcy of his Il
Diario newspapers. He was sentenced in absentia to 3 1/2 years in prison
and appealed. Back in the U.S., where
Parretti had yet to actually put the MGM deal together, the ridicule began.
"MGM is being bought by an Italian who has promised only one small
change," Billy Crystal quipped from the stage of the Oscars.
"From now on the lion is not going to roar--it will be taking the
Fifth."
If
such quips, plus the Italian news reports, plus the private background
investigation of Parretti that Credit Lyonnais had received in 1987,
weren't enough--and they weren't--Jean-Yves Haberer got a personal warning.
Over lunch, a film producer friend warned him to avoid doing business with
Giancarlo Parretti.
Back
in Hollywood, Steve Ross
began to have his doubts. He was troubled by reports of Parretti's criminal
problems in Italy. And then one
day he made a sobering discovery.
Parretti
had given Ross what appeared to be a Picasso drawing worth millions. Ross
had turned the piece over to Time Warner, which had called in an appraiser
in order to insure it. The appraiser declared the drawing a fake. (It was
later learned that much of Parretti's art collection was not genuine.)
Then,
Parretti failed to produce equity investors. For Ross, that was too much.
He withdrew his commitment of $650 million.
With
the centerpiece of their financing suddenly gone, Parretti and Fiorini
faced a crisis. They had already paid Kirk Kerkorian $200 million that was
nonrefundable. He granted them an extension until October, but raised the
price of MGM to $1.34 billion. Plus, Kerkorian was due $50 million more
each month. Credit Lyonnais had
surreptitiously financed more than two-thirds of the monthly deposits so
far, but would it spring for a billion more, a doubling of its commitment?
The
first $1 billion, greased by bribes, had come easy. The second $1 billion,
a different order of magnitude, might require another kind of inducement.
As they had in the past, Giancarlo Parretti and Florio Fiorini turned to
friends in high Italian places for what Fiorini would later call, in a
written statement, "help from above." Parretti consulted his
longtime associate Gianni DeMichelis, the Italian Foreign Minister, who,
according to Fiorini, suggested that Parretti and Fiorini see Bettino
Craxi, the former Prime Minister. DeMichelis denies Fiorini's account.
In
his written statement, Fiorini says Craxi received Parretti and Fiorini in Rome, in the
Socialist Party's headquarters on the Via del Corso. In his pocket, Fiorini
carried two "bearer certificates," drawn on July 10 from the Milan branch of the
Banca Novara Suisse, one for 600 million lire (then about $485,000), the
other for 200 million lire--certificates any "bearer" could cash
without reference to their origin.
Parretti
and Fiorini said that they needed "high-level intervention" at
Credit Lyonnais. According to
Fiorini's written statement, the inventive Craxi suggested that they link
the MGM deal to a major commercial negotiation then under way between the
governments of France and Italy. The French
government was trying to persuade the Italian government to purchase a new
high-speed rail network from manufacturers in France instead of Germany. Craxi
recommended to Parretti that he pay another call on his friend Foreign
Minister DeMichelis. Perhaps DeMichelis could prevail upon the chairman of
the Italian state rail company, Lorenzo Necci, to condition any agreement
by Italy to purchase
high-speed trains from France upon the good
treatment of Giancarlo Parretti by Credit Lyonnais.
After
the meeting, according to Fiorini's statement, he delivered the 600 million
lire bearer certificate to the Socialist Party treasurer, Vincenzo Balsamo,
and asked him to remind Craxi of their conversation.
Parretti
dined with DeMichelis at the nearby Plaza Hotel and asked him to
"intervene" to achieve a quid pro quo between the rail deal and
the MGM deal. He gave the 200 million lire bearer certificate to Gianni
DeMichelis's secretary.
"I
am sure," Fiorini wrote in his statement, "that Mr. DeMichelis
called the chairman of the Italian rail company to instruct him to mention
the interest of Italy in Italians'
taking control of MGM and that any help of Credit Lyonnais will be duly
appreciated by the authorities that had to decide the approval of the
high-speed train deal."
Shortly
thereafter, the government of Italy picked Credit
Lyonnais and Haberer
to lead the financing of the train consortium.
Fiorini
himself met with Italian rail czar Necci. "I mentioned to Mr. Necci
that we needed help with Credit Lyonnais, that Mr. Haberer will see him to
speak of the high-speed train, and that on that occasion he would try to
mention to Mr. Haberer to have a benevolent eye to the companies of
Parretti and myself...Mr. Parretti told me later that the intervention on
Mr. Haberer had been duly carried out."
Parretti
and Fiorini then traveled to Nice and briefed Georges Vigon at his weekend
home. Vigon suggested that they also should see Alexis Wolkenstein, Vigon's
boss, the general manager in charge of Credit Lyonnais's
international affairs, who reported directly to Haberer and who aspired to
succeed him. Wolkenstein would presumably welcome an opportunity to
ingratiate himself with the government, which would one day be choosing a
successor to Haberer. Parretti and Fiorini arranged for Italian Foreign
Minister DeMichelis to meet with Wolkenstein.
By
October 1990, Parretti and Fiorini had paid Kirk Kerkorian a total of $353
million. With a month before Kerkorian's deadline was to expire, they still
had to come up with more than $900 million and had few legitimate sources.
Time Warner, having withdrawn its commitment of $650 million, decided to
chip in a more modest $125 million for home-video distribution rights to
MGM films. Turner Broadcasting put up $200 million for television rights to
the 1,000 MGM movies it didn't already own. That left Parretti and Fiorini
over $600 million short.
At
Dino De Laurentiis's suggestion, Parretti solicited the aid of Marvin
Davis, the oil billionaire who had sold 20th Century Fox to Rupert Murdoch
but who remained a Hollywood player. After
an inconclusive meeting at Davis's Palm Springs weekend home,
Davis's driver
returned Parretti and two associates to the airport. "This guy is
stupid," Parretti said of Davis, in Italian,
in the back of the limo. "He's a big, fat, rich, dumb Jew. You know
Jews. They always want something for nothing. Well, this time he won't get
it. He'll be an easy touch."
The
following Monday, Parretti arrived at Davis's Century City office in Los Angeles. "I'm
going to teach you something," the oil man said. "Remember the
driver who took you to the airport? He speaks Italian. He understood
everything you said." Davis, a large man, gestured to the plate-glass
window facing the ocean from his majestic 28th-floor office. "Now,"
he said, "you have a choice. You can get out of this office in the
next 30 seconds. Or I'm going to throw you through this window."
Parretti fled.
Florio
Fiorini had laid a foundation that summer for more borrowing by seeming to
spruce up the creditworthiness of Sasea, the vast Swiss holding company and
money laundry that he controlled and that partially underpinned the
Parretti-Fiorini empire. He had raised 340 million francs through an
offering of Sasea debentures on the Geneva stock
exchange. It appeared that public investors had purchased the bonds,
endorsing Sasea's financial health, even as Fiorini and Parretti were
bidding for MGM. In fact, Sasea was deep in debt, using fake balance
sheets, and had secretly bought 88% of the bonds itself through a Dutch
subsidiary in a way meant to resemble public support.
Now, with just
days to go, Parretti and Fiorini, backed by the "health" of
Sasea, embarked upon a dizzying sequence of deceptions to prompt the
bribe-primed Credit Lyonnais to lend them
the rest of the money. The details of the deceptions emerge from an
examination of sealed depositions. Parretti told CLBN that Fininvest, the
Italian media empire of Silvio Berlusconi, would invest $50 million in the
MGM deal. (In fact, it isn't known whether Berlusconi had any intention of
investing, or whether he was merely allowing Parretti to use the
"commitment" as a means to instill confidence in others.)
Pointing to Sasea and Fininvest, Parretti then elicited a commitment of
$168 million from Reteitalia, another media company in Italy, for
television and pay-per-view rights to distribute MGM material in Italy and Spain. What he
didn't disclose was a secret side deal under which Pathe Communications
would have to refund most of the money, if Reteitalia demanded it, for up
to a year after the agreement.
Most
important, Parretti indicated that the corporate parent and grandparent of
Pathe Communications--Melia and Comfinance, both shells he
controlled--would make equity investments in Pathe totaling $350 million.
He didn't reveal that neither Comfinance nor Melia had nearly enough cash
or credit to make such investments.
To
conceal from the Dutch central bank the deepening role of Credit Lyonnais, which knew
how weak Melia and Comfinance were, Florio Fiorini recruited the help of
the second-largest shareholder of Sasea, Jean-Rene Bickart, a member of the
Seneclauze family, one of the oldest clients of Credit Lyonnais. There then
ensued an especially complicated example of the kind of fraudulent
transaction at which Fiorini had grown so adept: making yet another bank
loan appear to be an equity investment (see "Lyin' Game" chart).
That seemingly brought in another $150 million.
With
that, plus several contingent or phony commitments such as those from
Fininvest and Reteitalia, and bolstered by Fiorini's misrepresented summer
debenture offering, Parretti asked CLBN and Credit Lyonnais in Paris to
lend him enough money to close the MGM deal on November 1. He promised to
repay this "bridge" loan later when he received funds from Fininvest,
Reteitalia, and his other investors.
The
staff of CLBN's Entertainment Business Division opposed further loans to
Parretti. But Parretti didn't need the support of EBD. He had not bribed
the staff of EBD. He had bribed Georges Vigon, Jacques Griffault, and
Jean-Jacques Brutschi. Parretti was in constant contact with them by late
October. The circular Bickart charade was part of about $550 million in
last-minute loans the three bankers approved--Vigon in Paris gave the
final okay--so that Parretti and Fiorini could close their purchase of MGM.
In all, the two Italians had borrowed at least 76% of the $1.3 billion
purchase price from Credit Lyonnais, much of it
in secret to get around restrictions by Dutch and French banking
regulators. Most of the loans were made without contracts or disclosure to
investors--a violation of U.S. securities laws and the consent decree that
Pathe Communications had signed with the SEC in 1987, which prohibited
transactions among related companies pretending to be independent.
Pathe's
official November SEC report on the new loans amounted to an elaborate lie.
Giancarlo
Parretti and Florio Fiorini's takeover of Metro-Goldwyn-Mayer closed on November 1, 1990, in Los Angeles. MGM
executives broke out champagne and paraded a 400-pound live lion through
the studio in celebration. "Non me mangia!" Parretti yelled in
fright, "Don't eat me!" Parretti issued a press release declaring
a "goal of being the most powerful Euro-American communications group
of the Nineties."
Once
MGM was his, almost without pause, Parretti began looting the studio in
earnest, firing most of the financial staff and naming his 21-year-old
daughter, Valentina, to an important financial post. Various of Parretti's
many women were seen entering his office suite each afternoon. Sounds of
sex could be heard from behind closed doors.
CLBN's
largesse continued. The bank lent the studio another $97 million early in
1991.
But
the party didn't last long. Looted and hopelessly in debt, the MGM studio
was already little more than a tottering shell. The entire structure was so
precarious that it was all but undone by one man, a canny Los Angeles lawyer named
Stephen Chrystie. The great tangled Ponzi-esque skein of debt began to
unravel.
Chrystie
had made a good living over the years forcing corporations into bankruptcy
when they didn't pay their creditors. In March several clients had
complained to Chrystie that MGM owed them money--a total of about $18
million--and wasn't paying. Chrystie became the latest in a lengthening
line of lawyers and executives to obtain Parretti's Italian rap sheet. He
promptly filed a formal complaint against MGM in the U.S. Bankruptcy Court,
invoking Chapter 7 of the federal bankruptcy code, the chapter governing
involuntary bankruptcy. It was barely five months since Parretti had
acquired MGM. If upheld by a judge, the complaint would cause $300 million
to $400 million of MGM bonds to come due in 60 days. It might also transfer
control of MGM from Giancarlo Parretti, Florio Fiorini, and the Credit
Lyonnais bank to an independent bankruptcy examiner.
Chrystie's
complaint terrified the high command of the Credit Lyonnais bank. If the
bond debt came due, it would take precedence over MGM's debt to the bank.
But loss of control of MGM could be worse. A bankruptcy examiner would have
broad powers to investigate MGM's affairs, including its banking
relationships.
Haberer
huddled with two senior deputies, Alexis Wolkenstein and Francois Gille.
They reached a fateful decision: Parretti had to go. At all costs, the bank
wanted to avoid an independent investigation of its relationship with
Parretti.
When
news of Chrystie's complaint broke, the two Haberer deputies had just
returned to Paris from Los Angeles, where they
had been laying plans to reduce MGM's debt. Haberer, the bank's CEO, didn't
give them time to unpack. Gille and Wolkenstein immediately flew back to Los Angeles to deal with
the crisis.
Of
the two, Wolkenstein was more familiar with MGM. He was Georges Vigon's
boss and had supervised the bank's loans to Parretti and Fiorini leading up
to the acquisition the previous year. Wolkenstein also had met at least
twice with Foreign Minister DeMichelis in connection with Parretti's
purchase of
Since
his fateful lunch with Georges Vigon at the Cannes Film Festival in 1987,
Giancarlo Parretti had become one of CLBN's biggest customers. It didn't
matter. In the eyes of Gille and Wolkenstein, Parretti was history.
Everything
Gille and Wolkenstein learned in the days to come only strengthened their
conviction. First, in his conference room in Century City, lawyer Steve
Chrystie put Giancarlo Parretti's rap sheet in front of the French bankers.
"How could you loan money to a man like this?" Chrystie demanded.
Visibly nervous, they averted their eyes from the legal documents freshly
faxed from Naples. "He's a
fine gentleman," one of them said of Parretti.
In
meetings with MGM's and Pathe's auditors, Wolkenstein and Gille grew even
more alarmed--the auditors had been scrutinizing the financial deal put
together to acquire MGM, and they warned Wolkenstein and Gille that
Parretti had violated U.S. securities laws. It appeared he had lied about
the companies' debt-to-equity ratios in the wake of the hidden Credit Lyonnais loans.
Parretti also had lied in official reports to the SEC about the Cinema V
transaction in 1989, in which $184 million of debt had been disguised, and
about the merger financing that had been made to look like an equity
investment made by him and Fiorini. The auditors told Gille and Wolkenstein
that Pathe's SEC reports on the MGM acquisition would have to be revised
forthwith.
Alan
Ladd Jr., too, had lost confidence in Parretti, and he was the bankers'
first choice to replace him. Ladd had been among Parretti's biggest
supporters when he arrived in Los Angeles. He had
praised Parretti at the black-tie gala at the Beverly Hilton Hotel. Now,
however, Ladd was telling Credit Lyonnais that Parretti
was a disaster, and offered to take command of the company--for a $1
million bonus, atop his $3.3 million salary.
Gille
and Wolkenstein told Parretti that the bank would be willing to loan MGM
still more millions of dollars to keep it out of bankruptcy and away from
an independent examiner--but only if he relinquished control of the
company. Parretti agreed to leave as chief executive of MGM, but insisted
on remaining a director. After initial reluctance, he also ceded his job as
head of Pathe Communications to his old acquaintance Cesare DeMichelis,
brother of Gianni. The bankers crafted a "corporate governance
agreement" that purported to insulate Ladd from control by Parretti.
Credit
Lyonnais would loan
MGM an additional $145 million to stanch its $1-million-a-day cash flow
deficit. Chrystie's clients would be made whole , and he would drop his
complaint. As security for the loan, the bank would take voting control of
Pathe's MGM stock.
The
agreement was signed on April 15,
1991. As a gesture of good will, Parretti treated
everyone to champagne and dinner.
But
the day after the new agreement took effect, he sent Ladd a memorandum
demanding that Ladd inform him, as MGM's majority owner, of all important
decisions and meet with him weekly. Ladd dispatched his own memorandum
saying he was boss. Parretti countered with another memo, and the company
was soon mired in a debilitating civil war of memos that left it without
effective governance.
By
late May, the bank was seeking alternatives to the standoff between
Parretti and Ladd. It recruited Charles Meeker, the White & Case lawyer
who had been in charge of getting Steve Chrystie's bankruptcy complaint
dismissed, to join MGM as president. As it turned out, Meeker did little
more than courier memos between Ladd and Parretti, adding his own memos to
the mix and angering Parretti. In Paris, on Thursday,
June 6, Parretti told Meeker (whom he called "Meekers"): "I
want you to understand, Meekers, that I am really crazy...I want you to
understand that I am really dangerous. I am very dangerous. Do you
understand, Meekers? I'm very dangerous."
While
in Paris, Meeker
received a telephone call from a friend in the U.S. telling him
his life was in danger. Rumors, never substantiated, were coursing through
MGM that Parretti was a violent man, a Mafia guy, who would kill anyone who
threatened his position with the company, or that of his daughter,
Valentina. The bankers themselves took such rumors seriously; they began
holding their meetings under armed guard.
Eight
days later, on Friday, June 14, Parretti called a meeting of the MGM board
in Los Angeles. Ladd and
Meeker boycotted the meeting. The directors who attended--all Parretti
allies--passed several "resolutions" that, in effect, purported
to revoke the "corporate governance agreement" that the bank had
imposed in April and that Parretti was now claiming he had signed
"with a gun to my head."
Parretti
flew to Paris that night
and had a tense meeting Saturday with Gille and Wolkenstein. It was the
last straw. On Monday, June 17, invoking its rights under the April
agreement, the bank seized control of MGM, removed Giancarlo Parretti from
the company, and began a lawsuit against him in the Chancery Court of
Delaware, where MGM is incorporated.
Charles
Meeker, meanwhile, called the FBI and the SEC, both of which began
investigations of Parretti and his stewardship of MGM. Meeker also hired
the retiring special agent in charge of the FBI's Los Angeles office to
probe the company.
Credit
Lyonnais's sudden
emergence as the de facto owner of the world's most famous movie studio,
after years of shadowy dealings with two disreputable Italian tycoons,
broke like an intense summer storm in the French press. The bank came under
increasing pressure from the French Ministry of Finance and various
deputies in the National Assembly to provide details of its links to Parretti
and Fiorini. The aloof Jean-Yves Haberer found himself in the rare position
of issuing a written press statement defending the bank's conduct. He tried
to have it both ways. On the one hand, he blamed Georges Vigon for loans to
Parretti in the face of contrary instructions. On the other hand, he
complained that the bank was the victim of a disinformation campaign.
Citing widespread rumors about Parretti's background, Haberer said he had
no proof from any government that Parretti was undesirable. Haberer did not
mention bribery or high-speed trains.
Credit
Lyonnais announced
that Georges Vigon had taken early retirement and that Jean-Jacques
Brutschi had been reassigned to Southeast Asia. The bank did
not mention Jacques Griffault, but he too was soon sidelined.
A
conservative on the French National Assembly's finance committee, Francois
d'Aubert, attacked Haberer's scapegoating of Vigon: "It's obvious that
the decisions made on behalf of Mr. Parretti had been impossible without
the approval coming from those at the highest levels of the bank."
d'Aubert questioned whether Socialist Party groups in France and Italy had
pressured the bank into lending billions to Parretti and Fiorini. At the
time, the French press was rife with rumors that Mitterrand was influencing
loans.
With
Credit Lyonnais trying to
fathom its losses, the business relationship between the bank and its Hollywood clients
shifted rapidly from one of self-dealing, deception, and bribery to one of
intense legal combat, as intriguing in its own way as their prior dealings.
Billions of dollars were at stake. The bank and Parretti sued each other in
both Delaware and California over whether
the bank had improperly seized MGM. The bank and Kirk Kerkorian sued each
other, in both federal and state courts in Los Angeles, over whether
the bank had defrauded Kerkorian and whether he bore any responsibility for
MGM's financial condition at the time he sold it. The bank and several of
its smaller Hollywood clients, such
as Hemdale, Epic, and a former officer of Film Accord, fought over who was
to blame for those companies' difficulties.
The
Delaware Chancery Court found that the bank had been justified in seizing
MGM. The judge accused Parretti of lying on the witness stand; Parretti
accused the bank of suborning perjury by Fiorini.
Parretti's
suit against Credit Lyonnais in California would take
longer to resolve, as would the bank's battles with Kerkorian and Epic
Pictures.
In
one of the many sealed depositions taken by Kerkorian's lawyers and obtained
by FORTUNE, the attorneys try various approaches, including sarcasm, to
penetrate the hubris of Credit Lyonnais bankers. An
exchange between the lawyers and Francois Gille, the Credit Lyonnais
general manager in charge of finance:
"Mr.
Gille, are you aware that there is a lawsuit filed in California today
wherein it is alleged that Mr. Vigon received $2 million as a bribe that
was set up in a Canadian bank account in connection with a loan extended by
CLBN to a company called Film Accord?...Have you been able to do any
investigation with respect to whether that is an accurate rendition of the
facts?"
"No."
"Do
you intend to?"
"I
have formed no decision."
"You've
got to be a little curious, though, right?"
"Thank
you for your recommendation."
The
lawyers also asked Gille how much debt was carried on the books of Credit Lyonnais in connection
with MGM:
"The
debt should reach an approximate amount of $1.1 billion," he replied.
"And
how much of the $1.1 billion has been reserved?"
"For
the moment, nothing."
Where
did the money go--the $2 billion-plus that Credit Lyonnais lent Parretti
and Fiorni? According to the investigation by the former FBI official,
Lawrence Lawler, Parretti misappropriated roughly $100 million, directly or
indirectly, from MGM and Pathe Communications. More than $1 billion went to
Kirk Kerkorian, who then paid a small percentage back to CLBN to settle
litigation between them. Much of the rest of the money was spent operating
Pathe from 1987 to 1991 and covering MGM's operating losses for the eight
months Parretti owned it. "MGM was a company the executives kept
running so they would have someplace to go to get their paychecks,"
says one executive who worked there at the time.
Even
now, not every dollar is accounted for. Nor is it known whether the bank's
officers ever benefited from the bribes they took. Jacques Griffault
testified that he kept the 21st Century Distribution Corp. stock
certificates in a drawer at his home. Jean-Jacques Brutschi testified that
he "eliminated" the stock certificates when he changed offices.
Just as well; 21st Century currently is back in bankruptcy. The value of
the artworks the bankers took is also in doubt. One of the many lawyers
looking into the Parretti-Credit Lyonnais affair compares it to Chinatown, the Roman
Polanski movie in which ambiguity clouds verifiable facts to the end.
EPILOGUE
- --Florio Fiorini's
holding company, Sasea, filed for bankruptcy in 1992. It was the
largest bankruptcy in the history of Europe, with Credit Lyonnais as one of its
largest creditors.
- --In Geneva, a judge eventually
charged Credit Lyonnais Chief Executive Jean-Yves Haberer and general
manager Francois Gille with fraudulent complicity. Gille, in an
earlier hearing, had called the Geneva judge a "lout"
and a "thug" to his face in court. In late 1993, the French
government fired Haberer and put him in charge of a bank whose total
assets barely topped Credit Lyonnais's bad loans--$25
billion--the largest bad-debt designation in history. In 1994, Haberer
was fired from that job too.
- --The bank's lending
policies in the late Eighties and early Nineties led to massive losses
in nonentertainment fields such as real estate and finance. It took
years for the extent of the losses to emerge. In 1992 it lost money
for only the fourth time in its history. Under a draconian bailout
plan imposed by the European Union in 1995, the bank must shed 35% of
its non-French assets. It has sold many of its major foreign
operations, including subsidiaries in Argentina and Brazil, and the notorious
CLBN. By 2002, according to a Paribas report, Credit Lyonnais will be only half
the size of its main rivals, Societe Generale and Banque Nationale de
Paris, which it once aspired to dominate.
While battling Parretti in court, Credit Lyonnais has put MGM
up for sale. As bidders test the veracity of Credit Lyonnais's
presentation, they might want to explore the nature of the bank's strenuous
and continuing efforts to conceal the nature of its relationship with the
studio's prior owner.
- --Florio Fiorini was
arrested and jailed in Geneva, charged with
bankruptcy fraud. He spends much of his time in prison chronicling his
experiences on a typewriter. Since his arrest in 1992, he has
published a book of vignettes of his life entitled Ricordati da
Lontano (Memories of Long Ago). He has written an 82-page
"affidavit" covering his experiences with Parretti, Credit Lyonnais, and MGM. He has
reportedly written a book-length account of the Vatican's relationship with
Italian banks. And he is preparing to circulate a 356-page manuscript
to American publishers on the MGM fiasco.
Fiorini stands convicted of bankruptcy fraud in Switzerland. Credit Lyonnais's Jacques
Griffault this year pleaded guilty in the Italian part of the Sasea
bankruptcy.
- --On a warrant from France, Giancarlo Parretti
was arrested and cuffed with his hands behind his back by federal
agents in the conference room of White & Case in downtown Los Angeles last October. The
agents whisked him through the art-adorned reception area and off to a
holding cell for federal prisoners in a seedy neighborhood east of the
U.S Court House. As Parretti
was hauled away, a startled judge who had been presiding at a
deposition Parretti had been giving in the conference room observed,
"Even Charles Manson got cuffed in front."
A federal court in Los Angeles has ruled
that France may extradite
Parretti; he is appealing. For now, he is free on bail and living with his
son in Burbank, but confined
to the Los Angeles area.
- --On May 5, the
opulent Paris headquarters of
Credit Lyonnais, a hulking French
Empire pile, was completely gutted by fire. Authorities have found no
cause.
SPECIAL EFFECTS IN HOLLYWOOD: HOW TO MAKE
BAD LOANS DISAPPEAR
When
Bruce McNall, the Los Angeles rare-coin dealer
and sports impresario, got in trouble, he had the right banker on his
side--the bribery-ridden Credit Lyonnais, which has
since chalked up $25 billion of loans, 7.4% of its assets, as bad debt, the
largest debacle in the annals of world banking.
In
the 1980s, McNall and David Begelman, the former Columbia Pictures and MGM
executive who had been convicted of grand theft in a check forgery scandal,
ran a film company named Gladden Entertainment. By 1989 a credit analyst at
the bank's Dutch unit, CLBN, was telling his superiors that "the
financial position of the [McNall-Begelman] company is a disaster."
And yet the top officers of CLBN, who oversaw Credit Lyonnais's loans to
Hollywood--one of whom McNall and Begelman had been bribing since 1983--not
only loaned the company more money but also assented to a ruse to make it
appear that an independent investor was purchasing $20 million of equity in
Gladden when no such investor existed.
Ultimately,
Gladden Entertainment and the rest of the McNall-Begelman corporate empire
went under. A lawsuit filed in May by the McNall bankruptcy trustee alleges
that CLBN actually had a "practice and policy" of loaning money
to disreputable people and allowing officers to accept "gratuities
and/or consulting payments" from them, and that the bank engaged in a
Ponzi-esque scheme of frauds to conceal its loans from regulators. By such
fraud, the suit claims, CLBN also enabled McNall to borrow millions of
dollars fraudulently from other banks, such as the Bank of America--some of
which was then paid to CLBN.
Another
troubled borrower to which CLBN gave fraudulent help was Empire
Entertainment, producer of such dreck as Crash and Burn, Crawlspace, and
Ghoulies. Empire had borrowed $26 million from CLBN and by 1988 was in default
and nearly bankrupt. Georges Vigon, head of European lending for Credit Lyonnais, feared that
if Empire failed, the Dutch central bank and other regulators might force
CLBN to call its growing number of shaky Hollywood loans. That
would destroy the bank's entertainment business, possibly ending Vigon's
career.
Vigon
enlisted the aid of two Hollywood producers,
Eduard Sarlui and Moshe Diamant, who also were longtime clients of CLBN.
They created a new company, Epic Holdings, which acquired Empire. Epic in
turn was owned by a shell company in the Netherlands, Formax,
whose stock in turn was owned by a newly formed Panamanian corporation,
Route of the Stars, or ROS. ROS's ownership was evidenced only by bearer
certificates carrying no names. The bearers were Sarlui and Diamant, to
whom CLBN loaned $200 million, some of which was used to pay off Empire's
old loans. Empire's other creditors, however, were not paid. And, since the
the new owners of Empire were hidden behind a cloud of anonymous shares at
the top of a corporate pyramid in Panama, creditors
had nowhere to turn. The structure was similar to Giancarlo Parretti's
corporate structure, which had been used by some Credit Lyonnais officers
to conceal bad loans at the Cannon Group.
Those
were just a couple of a staggering number of rotten deals that have since
compelled the French government to infuse $14 billion, or 5% of its total
tax revenues in 1995, to save Credit Lyonnais from collapse--the largest
bailout in banking history.
MGM: ON THE BLOCK AGAIN
KATHRYN
HARRIS
Like
a well-done hamburger, Metro-Goldwyn-Mayer Inc. has been flipped a lot in
the past decade, fetching $1 billion, plus or minus, in each sale. Now MGM
is being tossed from the spatula of Credit Lyonnais. Bids are due
June 24, according to two sources, although the process could drag on.
Who
has an appetite for this still-tempting asset? Any number of players, it
turns out, ranging from the mighty News Corp. to small producers jockeying
to assemble investors and lenders. Each savors the MGM name and its film
library, which includes the 1,200-title United Artists library, plus Cannon
and post-1986 MGM movies. The library owns such classics as High Noon, West
Side Story, Midnight Cowboy, Annie Hall, Rain Man, the Rocky pictures, and
the James Bond series--products that would bring smaller producers like
PolyGram or New Regency Productions or Morgan Creek Productions added
revenues, plus instant cachet. For their part, major studios need more
top-notch products to feed their distribution systems; they also could use
the film library to boost or distinguish any cable TV or pay-TV venture.
Some
observers think Warner Bros.--controlled by Time Warner, the parent of the
publisher of FORTUNE--has the inside track because of the home-video deal
it struck with Giancarlo Parretti in 1990. Not only does Warner have the
right to distribute MGM's movies on video until 2003, but it also claims
home-video rights to the movies of any company that might acquire MGM,
according to people familiar with the contract. Those rights diminish MGM's
value to other big studios. Warner won't bid directly for MGM; it doesn't
want to inflame antitrust regulators already scrutinizing Time Warner's
proposed acquisition of Turner Broadcasting System. Instead, Warner is expected
to back a bid by New Regency or Morgan Creek.
By
all accounts, the current head of MGM, Frank Mancuso, has done a solid job,
capped by recent blockbusters Goldeneye and The Birdcage. The studio may
even enter the black this year. Although MGM's existing debt will be
retired on its sale, any new owner needs $500 million to $600 million in
working capital to play in Hollywood's major
league. Without that, says one investment banker, "you're back in Parretti Land. If five or
six movies don't work, you're dead."
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