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Capital Markets

Lawyers claim unregistered issues not inherently insecure

Parmalat's collapse is leading regulators to question how a multi-billion dollar disaster was not foreseen and averted.

Regulators are alarmed that a company could tap the capital markets while on the brink of bankruptcy, and are asking whether by raising funds through unregistered offerings issuers can avoid proper examination before raising capital. Of particular concern to banks' legal and accounting advisers is whether professional advisers on securities issues could be held liable for failing to expose Parmalat's troubles.

Since Parmalat declared bankruptcy on December 24, US regulators have been working with Italian counterparts. Within five days of the declaration, the SEC filed charges of securities fraud against Parmalat Finanziaria in a New York federal court. It is also reported to have widened its investigations to look at the role of the investment banks that helped Parmalat raise up to $1.5 billion over recent years through bond sales to US investors.

The US attorney's office in New York is said to be involved, and the Manhattan district attorney's office is working with Italian regulators on related Parmalat issues.

Rule 144A immunities At the centre of the controversy are Rule 144A offerings, which enable non-US issuers to raise money in the world's largest domestic capital market by selling unregistered securities to qualified institutional buyers (QIBs) with at least $100 million in assets.

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