(FORTUNE Magazine) – 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 MGM.

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.

REPORTER ASSOCIATE Anne Faircloth