Parmalat's founder was arrested on Sunday in a criminal investigation into billions of missing euros at the insolvent food group, but his lawyer said no money had been stolen in the corporate scandal.

Lawyer Michele Ributti rejected allegations that billions of euros had disappeared in the crisis gripping Italy's eighth biggest group.

Parmalat's founder Calisto Tanzi is suspected of fraud and misappropriating hundreds of thousands of euros, judicial sources said. No charges have yet been brought.

Tanzi was seized by police on a Milan street on Saturday after returning from a trip out of the country. He was taken to a Milan jail under a 48-hour detention order and questioned for more than six hours on Sunday by magistrates from both Milan and Parma, a city near Parmalat's headquarters.

Late on Sunday, judicial sources said a Milan judge formally placed Tanzi under arrest on suspicion of market rigging and false auditing -- a more serious step under Italian law enabling authorities to keep him in custody for questioning beyond the previous detention order.

The media-shy Tanzi is among some 20 people, including current and former Parmalat executives and outside auditors, under investigation for suspected crimes including fraud, false accounting and market rigging.

His lawyer Ributti said there had been "non-existent" credit items on Parmalat's accounts, which according to public prosecutors show a hole that could exceed 10 billion euros, but that no money had gone missing

"No money disappeared, just non-existent assets," Ributti told reporters.

The investigation has raised far-reaching questions about the conduct of the company's managers, auditors and banks.

Italy's biggest corporate crisis in more than a decade has forced Parmalat into insolvency while it tries to recover. It threatens billions of euros of investments by holders of shares and bonds, as well as at least two billion euros in bank loans.

The scandal erupted earlier this month when Parmalat, which has 35,000 employees in some 30 countries, revealed the gaping hole in its accounts.

Investigators said people questioned last week described a complex network of offshore shell companies masking losses for more than a decade and overseen by senior executives.

U.S. auditor Grant Thornton has rejected allegations it falsified accounts at a Parmalat unit at the heart of the investigation.

"DIFFICULT TIME FOR HIM"

Judicial sources said investigators were probing whether Tanzi had misappropriated hundreds of millions of euros of Parmalat funds. Last week authorities sealed off the family's holding company, Coloniale, which controls Parmalat.

"They have not formulated any charges," Ributti said. "He (Tanzi) is describing things he witnessed. For the moment we're at the point of describing facts and situations."

"It's a difficult time for him," another lawyer for Tanzi, Fabio Belloni, said before the questioning began on Sunday.

Investigators planned to continue interrogating Tanzi on Monday, judicial sources said.

The Milan and Parma investigators are pursuing parallel investigations, with those in Milan focusing on market rigging, false auditing and false communication to auditors.

The Parma team is probing false accounting, criminal association and fraudulent bankruptcy -- which carries the heaviest potential penalty.

In a day of reckoning on Saturday, Parmalat, now headed by a government-appointed rescue administrator, was declared insolvent by a Parma court, hours before Tanzi was detained.

Insolvency allows Parmalat to remain in operation and to continue paying workers, dairy farmers and suppliers, putting thousands of financial creditors on hold while it draws up a recovery plan within six months.

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