As lawyers in the Andersen accounting firm’s obstruction-of-justice trial selected a jury of nine men and seven women, Andersen struck a deal to settle a separate civil case involving its auditing practices in Arizona.
The Chicago-based firm said it had reached a new agreement for a global settlement of legal matters related to the firm’s auditing work for the Baptist Foundation of Arizona, which ran an investment trust that lost $570 million belonging to 13,000 mostly elderly investors.
The new settlement, like the old one, calls for a payment by Andersen of $217 million–about 32 cents on the dollar to each of the foundation’s investors. Andersen attorneys said Monday the firm had turned over $11 million as a good-faith, up-front payment, and agreed to other measures guaranteeing it will pay the entire settlement.
The lead lawyer for the estate overseeing the bankrupt Baptist Foundation said Andersen’s criminal trial likely motivated the accounting firm to settle in civil court.
“It is not a good thing for a defendant in a civil trial to be the subject of the biggest criminal trial in the country at the same time,” said John P. Coffey, attorney for the BFA Liquidation Trust.
The settlement resolves the trust case and other actions brought by state regulators and the Arizona attorney general’s office.
Separately, Andersen’s closely watched criminal trial in Houston federal court got under way Monday, as lawyers for the prosecution and defense broadly outlined their strategies.
Appearing before prospective jurors, federal prosecutors unveiled the names of 52 witnesses–many current and former Andersen employees–whom they intend to use to build a case that Andersen engaged in a company conspiracy to shred documents last November related to its audits of collapsed energy giant Enron Corp.
The list includes David Duncan, a government informant who has admitted destroying paperwork, and former Andersen partners Michael Odom and Stephen Goddard.
But in addressing potential jurors, defense attorney Rusty Hardin argued that destroying documents does not constitute an illegal act. Andersen as a company should not be held accountable for actions of its employees, he said, if they were destroying papers solely to protect themselves and not the firm.
“No way is anyone going to deny the documents were shredded,” Hardin said. “I don’t think there’s going to be any evidence in this case that people destroyed documents to keep them away from the police.”
The prosecution contends, however, that the Andersen partnership was responsible for overseeing the conduct of all its workers.
“It’s not a defense to come to court and say, `Well, just a few people did this and there are thousands of people who are innocent,”‘ Asst. U.S. Atty. Matt Friedrich said.
Settlement talks failed
For weeks, the government and Andersen have tried to avoid taking the case to trial. But despite lengthy settlement talks, there were apparently no last-ditch efforts to broker a deal.
By midmorning, 106 prospective jurors from around the Houston area walked into an 11th floor courtroom. Attorneys from both sides quizzed them at random, mostly using prefiled questionnaires, to gauge possible bias.
Despite the widespread effect of Enron’s collapse on Houston, many of the potential jurors said they could be fair.
Only nine of them said they knew Andersen employees personally, while seven said they used to know Andersen workers. Just 21 of the 120, already whittled down from 299 in pretrial screening, acknowledged knowing someone who worked with Enron.
But more than two-thirds of the jury pool raised their hands when asked by Hardin if they knew of Duncan from media reports. And under further questioning, a few admitted to a seething anger over the Enron collapse.
“My biggest problem is to try and get the anger out of me,” said one man.
Following a mandate by U.S. District Court Judge Melinda Harmon to move the trial along so that it concludes by May 29, a jury of 12 Houston-area residents and four alternates was seated shortly before 6 p.m. Opening arguments are expected Tuesday morning and whistleblower Duncan could take the stand as early as midweek.
Other key testimony could come from Nancy Temple, an Andersen attorney in Chicago who wrote an e-mail to the Houston office in mid-October outlining the company’s document destruction rules; Carl Bass, a leading partner in Andersen’s Houston office who was taken off the Enron team in March 2001 after balking at shaky transactions that later played a crucial part in Enron’s collapse; Odom, an Andersen partner on the Enron account; and Sharon Thibault, an Andersen supervisor in charge of document destruction who was alarmed at the volume of Enron documents being shredded.
Deal with Ernst & Young
In another development Monday, Andersen agreed to a deal under which rival Ernst & Young will hire nearly 160 Andersen employees, including 14 partners and principals, in four Michigan and Ohio offices.
The deal, which will see Andersen’s Detroit, Ann Arbor, Grand Rapids and Toledo offices jump to E&Y, is the latest in a series of merger deals involving Andersen and its partners in the U.S. and abroad.
These include an impending deal with rival Deloitte & Touche, which is expected to hire away hundreds of Andersen tax partners and employees. A deal involving Andersen’s business risk consulting practice and a deal with rival KPMG to hire away tax and audit partners in at least eight Andersen offices are also being finalized.
“This transaction is consistent with the firm’s plan to move forward as a smaller and different firm aligned with the reforms we have outlined and the smaller scale of our client base,” Andersen said. “We are aligning our personnel complement and cost structure with our revenue base.”
Most significant in the Ernst & Young deal is the Detroit office transfer, which will swell E&Y’s ranks in the city to almost 260 people. E&Y’s Detroit office chief has been promoted and will be replaced by Jeffrey Bergeron, the former managing partner for Andersen’s Detroit office.
Neither E&Y or Andersen disclosed terms, but E&Y is expected to make payments to its Chicago-based rival.
