By  on July 28, 2010

MILAN — The opulent lifestyles of Walter Burani and his son Giovanni appear to have caught up with them. The former executives of Mariella Burani Fashion Group were arrested Thursday by the Guardia di Finanza of Reggio Emilia, Italy, a police force under the authority of the country’s Minister of Economy and Finance.

The arrests, confirmed by a spokesman for the Guardia di Finanza, were requested by Milan prosecutors Luigi Orsi and Mauro Clerici, who have been investigating Burani Designer Holding for fraudulent bankruptcy. BDH is the parent company of Mariella Burani Fashion Group, which produces and distributes collections for La Perla and Vivienne Westwood, among others, and is under state-supported administration.

Walter Burani, former chairman of MBFG, is under house arrest, while Giovanni, former chief executive officer, has been transferred to Milan’s San Vittore prison.

The spokesman said the Buranis will now be interrogated by the judge for the preliminary investigations, Fabrizio D’Arcangelo. He added that Walter Burani was granted house arrest because of his age, 77, and “attenuated responsibilities.”

Only two years ago, the Burani family seemed to have it all: a growing fashion conglomerate and a life in the fast lane. Tales of second-generation Giovanni Burani living in a Renaissance castle were outdone only by his father Walter’s weekends racing vintage Formula 1 cars.

But the pendulum swung — and swung hard. The once high-flying Mariella Burani Fashion Group said earlier this year it was going to be liquidated, weighed down by debts of more than $600 million, and had to pledge 66.4 percent of the company to Italy’s Centrobanca (UBI Banca Group).

These are tough times for Italy’s family-owned fashion conglomerates, which expanded rapidly in the go-go Nighties and early years of the Noughts thanks to the country’s banks, which were only too eager to lend money for one acquisition or new building after another. These firms bought brands and inked licensing deals with major designers throughout Europe, forming an at-times lucrative arrangement that helped each of them grow. But as the global financial system came under strain in late 2008 and throughout 2009, the once-friendly banks have become less so, and have squeezed these debt-fueled conglomerates for repayment of their loans.

Sources generally agree that Walter Burani, who founded the company, then called Selene, in 1960 with his wife Mariella Burani as a producer of children’s wear, was a smart entrepreneur, and that the problems were in the second generation. The Buranis moved on to women’s ready-to-wear collections a decade later, and in 1993 signed a license with Valentino to produce and distribute the Carisma and Carisma Rouge lines, followed in 1999 by a license for the Collection line for women for Calvin Klein. That year, they also took control of the Mila Schön brand.

With their sons Andrea and Giovanni, the Buranis listed the company on the Milan Stock Exchange in 2000 and began building an apparel and accessories conglomerate over the following decade, expanding in other areas such as food, with different companies under Burani Designer Holding NV. And they kept piling up its debt.

“Walter’s role model was Achille Maramotti [founder of neighboring Max Mara], and he was very ambitious, but leaned too much on Giovanni, who always dabbled with finance a little too freely and considered himself a financial whiz,” said a source.

“I would call this creative finance,” agreed a Milan-based source. “I’m not surprised the magistrates are involved.”

An industry source said the Buranis in particular “knew what their weaknesses were and through the listing they were hoping to gain strength financially to compensate their industrial frailty. They should have tried to make the Mariella Burani label stronger while available resources were actually taken from that brand and dispersed.”

It is widely believed Giovanni Burani masterminded the expansion of the firm into an apparel and accessories conglomerate in the early years of the Noughts, piling up the debt and dabbling too freely and creatively with finance, according to several sources. The spokesman said Walter Burani, who resigned his post in January, could not be ignorant of his son’s actions and backed his decisions.

The Buranis, said the spokesman, are accused of having dissipated the properties of the Mariella Burani fashion brand through financial operations, including an artificial support of shares on the Milan Stock Exchange. About 20 percent of its shares are held by investors, but trading was suspended in September. Four companies under the Burani Group are listed: Mariella Burani, Antichi Pellettieri, Greenvision Ambiente and BioEra.

The prosecutors are also investigating the initial public offering BDH made of 15 percent of MBFG in 2008. BDH is headquartered in Amsterdam, but prosecutors affirm it is actually based in Milan.

In January, Milan prosecutors Luigi Orsi and Mauro Clerici Orsi filed a bankruptcy request for BDH, contending the firm owes 20 million euros, or $26 million at current exchange, to three private equity funds, including La Perla parent company JH Partners, which assisted the group in its tender offer of 15 percent of MBFG in 2008. The prosecutors believe BDH does not have funds to repay this debt, nor another debt of 5 million euros, or $6.4 million, with MBFG, and one of 15 million euros, or $19.4 million, with a pool of banks. In February, a Milan court declared Burani Designer Holding NV bankrupt.

The total debt of the four listed companies is 633.1 million euros, or $822.7 million.

In March, Italy’s Ministry of Economic Development granted state-supported administration to MBFG and appointed three administrators to manage the group. Earlier that month, Giambattista Valli terminated his contract with MBFG, deciding to take production in-house.

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