International banks felt the heat from the multi-billion-euro Parmalat scandal on Saturday as the US SEC said it was investigating whether they were negligent or reckless by selling the food firm's bonds.
With Parmalat's founder Calisto Tanzi being questioned again in a Milan jail, Italian prosecutors also focused on the banks amid one of the world's biggest corporate crises.
"We need to understand if they acted in a way that was negligent or reckless or otherwise," Lawrence West, associate director of enforcement at the Securities and Exchange Commission told Italian newspaper Corriere della Sera.
The SEC has launched its own probe into what it has called "one of the most brazen corporate financial frauds in history."
Parmalat's crisis exploded just over two weeks ago when a new management team revealed a four-billion-euro hole in its accounts, forcing the company to seek protection from creditors.
Tanzi, who resigned as chairman last month, has said the shortfall could be as big as eight billion euros ($10 billion). But prosecutors say it could be more than 10 billion euros, on a level with the collapse of US telephone services group WorldCom which improperly recorded $11 billion in its accounts.
Tanzi has also admitted to diverting about 500 million euros from the publicly-quoted group into family-owned firms. Banks in several countries have been asked for information as prosecutors try to unravel what they say is a web of systematic fraud at the company dating back years. Judicial sources in Parma said US authorities had searched the New York offices of one of the eight people arrested so far in the case, lawyer Giampaolo Zini who worked with Tanzi, confirming a report in newspaper Il Sole 24 Ore.
Also among the arrested are two of Parmalat's auditors.
No charges have been brought.
"The responsibilities of Bank of America and of the other investment banks that handled the issuance of Parmalat securities in the United States...depend on the amount of knowledge they had of the company's true financial situation," West told Corriere.
Bank of America was among some 20 European and US banks to sell about eight billion euros worth of Parmalat bonds between 1997 and 2002. The group's bond due in 2010 is now trading at less than 20 percent of face value and its shares, worth next to nothing, have been suspended indefinitely.
Bank of America is believed to have organised private placements of $500 million of Parmalat bonds since 1997 and has been involved in structuring other business for the group.
No one was available for comment at the Bank of America.
The SEC and US justice authorities have clamped down on Wall Street institutions amid recent US corporate scandals.
On Friday, Bank of America's securities arm said it may face civil action from the SEC which has alleged it violated books and records retention laws relating to a 2001 SEC inquiry, separate from the Parmalat investigation.
The Parmalat crisis was triggered last month when Bank of America said documents purportedly showing that a Parmalat unit in the Cayman Islands held four billion euros ($5 billion) in cash and securities with the bank were in fact false.
Italian creditor banks are similarly under increasing scrutiny over what they knew about Parmalat's finances.
Investigators and a rescue management team now in charge of Parmalat are also trying to trace the missing millions.
On Saturday, the offices of regional bank Banca Monte Parma in Parma were searched for a second day by police.
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