Andersen is willing to pay $300 million to settle the barrage of lawsuits against it, but there are signs that the Chicago accounting firm’s attempt to put the collapse of Enron Corp. behind it are proving increasingly difficult.
While people familiar with the matter said Andersen is willing to pay heavily to settle with the victims of Enron’s bankruptcy, the accounting firm and its plaintiffs were unable to reach a deal during a meeting Wednesday. The reason: a dispute over the liability of New York investment banks that are both claiming money from Andersen and being sued by Enron shareholders.
In parallel talks Wednesday, Andersen and the Justice Department again were unable to negotiate a settlement of the felony obstruction-of-justice charge against the accounting firm.
Despite widespread reports that a settlement with prosecutors was at hand, the snags the talks have encountered show the complexity of the issues, people involved say. Indeed, one source knowledgeable about Andersen’s dealings with prosecutors sounded a pessimistic note about any imminent solution to the accounting firm’s legal problems.
“There is no deal today, and I don’t expect there to be one tomorrow,” the source said. “It’s a mistake to assume that there is going to be one at all. We are still negotiating and trying to see the boundaries of where a deal lies.”
Andersen, in danger of disintegrating under the weight of legal assault stemming from its role as Enron’s auditor, is dealing with an array of opponents, many with competing agendas and conflicting interests.
Enron’s shareholders are suing Andersen because the firm’s auditors signed off on the company’s deceptive accounting. When the problems came to light late last year, Enron’s stock price collapsed.
The Justice Department indicted Andersen after the firm disclosed that some of its employees had shredded thousands of Enron-related documents. Andersen goes on trial for obstruction of justice next month unless the firm can first come to some kind of agreement with prosecutors.
Meanwhile, the Securities and Exchange Commission has its own case against Andersen and could levy harsh penalties against the firm. But the SEC is waiting to see whether there is a deal between Andersen and the Justice Department before acting.
Lawyers for Andersen and the shareholder plaintiffs met Wednesday in the offices of Davis Polk & Wardwell, a New York law firm, in an attempt to agree to settle the civil case. A primary topic of conversation, people involved say, was the liability of the New York investment banks.
As investors in Enron, the banks are victims. But the banks also provided financial services to Enron, making them targets of the shareholders.
“No settlement,” said one source. “Everyone [is] flying back from New York.”
“It was always going to be difficult to get a three-part deal done,” said Richard Measelle, former Andersen chief executive, Wednesday from London. “The civil suit was always going to be the most difficult to settle.”
Further complicating the issue for Andersen is the SEC, which is pursuing its own case against the firm, and the 50 state accounting boards that regulate auditing firms.
Andersen cannot simply plead guilty to the charge of obstruction of justice–even though as a firm, no one could go to jail–because that might prompt the SEC and accounting boards to disqualify the firm from audit work.
The Justice Department must also deal with complex issues as it negotiates with Andersen. For one thing, there may not be much left of the firm to prosecute by the time the trial starts next month.
“Given that over 170 Andersen clients, a large number of them among the Fortune 500, have left, I would be surprised if Andersen is a viable entity by the time summer gets here,” said Royal Martin, a former federal prosecutor in Chicago.
Justice Department officials may also feel some pressure to let Andersen off with less than a criminal conviction, Martin said. Andersen has loudly claimed that a plea is tantamount to dissolving the firm.
“By not requiring Andersen to plead guilty to obstruction of justice, it may take some of the heat off the department for causing the demise of Andersen,” Martin said.
Meanwhile, Andersen’s legal problems worsened, with Connecticut Atty. Gen. Richard Blumenthal filing a lawsuit against the embattled firm for its role in the Connecticut trash authority’s loss of $220 million in a failed deal with Enron.
