June 13 (Bloomberg) -- Morgan Stanley, Deutsche Bank AG, UBS AG and Citigroup Inc. will stand trial for allegedly concealing Parmalat SpA's deteriorating financial condition while raising money for the Italian dairy company before it went bankrupt in 2003.

Judge Cesare Tacconi scheduled the trial for the four lenders and nine of their current and former executives for Jan. 22, Milan magistrates said today. The banks and individuals, all of whom deny wrongdoing, are accused of market manipulation.

Parmalat collapsed in 2003 in Italy's largest bankruptcy, later disclosing more than 14 billion euros ($19 billion) of debt, about eight times the amount reported by its former management. Prosecutors sought charges after discovering the company had never earned a profit after its stock market listing in 1992, though it reported earnings every year.

``It's good news that the case goes to a criminal trial,'' said Umberto Mosetti, head of the Italian unit of Brussels-based Deminor, which is representing more than 6,000 investors including a number of bondholders in a U.S. class-action suit. ``The issue now is that there were 10 billion euros of losses suffered by investors and debt holders, who thus far haven't been reimbursed anything,'' he said.

Hiding Finances

Milan magistrates allege that the banks disguised the real terms of Parmalat bond sales and other financing from investors, helping the company mask its financial situation. Each charge of market manipulation can carry a prison term of as long as five years, while the banks may face fines of as much as 1 million euros for each count. Tacconi didn't release the document identifying the individuals who are being indicted.

``It will be a difficult trial,'' Francesco Greco, the lead prosecutor in the Parmalat case in Milan, said in a telephone interview. ``The Milan prosecution is doing everything in its power to prove the liabilities that emerged in the Parmalat bankruptcy.''

Non-Italian banks underwrote more than 80 percent of the 7.5 billion euros of bonds and private placements sold by the company after 1990.

``Given the evidence we have collected, I think it will be very difficult for prosecutors to prove charges of market manipulation with regard to Deutsche Bank,'' the bank's defense lawyer in Milan, Francesco Isolabella, said in an interview.

Deutsche Bank spokesman Ronald Weichert said the bank will ``vigorously defend itself and its employees in this matter,'' while Morgan Stanley said in an e-mailed statement that it will ``vigorously contest'' the case.

Citigroup, the world's biggest financial-services company, said in a statement that it is ``certain'' the trial will show ``their total lack of involvement in the actions they have been charged for'' and that the bank was also a victim in the case.

`Valid Transaction'

``UBS remains of the view that the transaction in which it was involved was a valid transaction which did not involve any behavior on its part or on the part of its employees which can be characterized as a participation in a market manipulation crime,'' UBS said in a statement.

In civil litigation in the U.S. and Italy, Parmalat Chief Executive Officer Enrico Bondi has so far reached settlements totaling more than $775 million. The accounting firm Deloitte Touche Tohmatsu agreed in January to pay $149 million to resolve Parmalat claims in the U.S.

Morgan Stanley agreed to pay 155 million euros to Parmalat in June 2005 to settle a lawsuit and any future civil claims, becoming the first foreign bank to resolve legal action brought by Bondi. The agreement ``settles all existing and potential claims, including compensation of damages,'' the two companies said in a statement at the time.

Citigroup lost a bid on May 15 to have the New Jersey Supreme Court dismiss a $10 billion lawsuit by Parmalat alleging the bank helped hide debt.

Tanzi

Parmalat's stock returned to trading in October 2005 after the company's two-year reorganization. Shares of Parmalat rose 6.4 cents, or 2 percent, to 3.18 euros in Milan, giving the Collecchio, Italy-based company a market value of 5.2 billion euros.

Parmalat founder Calisto Tanzi and 15 others went on trial in Milan in September 2005 on charges of market manipulation. Prosecutors have rejected offers from Tanzi to plead guilty in exchange for a reduced sentence, while most of the other defendants, including Parmalat's former chief financial officer Fausto Tonna, have entered guilty pleas.

Magistrates in Parma, which is near Parmalat's headquarters, are conducting hearings in their investigation of Tanzi and more than 60 former executives, advisers and bankers for the more serious charge of fraudulent bankruptcy. That crime carries a maximum prison sentence of 15 years.

To contact the reporters on this story: Sara Gay Forden in Milan at sforden@bloomberg.net; Silvia Lamberti in Milan at slamberti@bloomberg.net.

Last Updated: June 13, 2007 13:03 EDT