Arthur Andersen Cites Lawsuit Fear, Drops Comprehensive Care : Finance: But health care management company denies having legal problems.
The chance of being ensnarled in litigation over its work caused Arthur Andersen & Co. to drop Comprehensive Care Corp. as a client, the independent auditor said Monday.
Though Arthur Andersen declined to discuss details of its prior business with Comprehensive Care, it noted that the troubled Newport Beach health care management company’s “historic performance speaks for itself.”
The accounting firm has expressed concerns about the company’s prospects for some time. In qualified opinions about Comprehensive Care’s financial statements the past two fiscal years, Arthur Andersen raised the possibility that the company might no longer be a going concern.
The company has lost a total of about $108 million since 1989.
Earlier this year, the accountants refused to let the company use those opinions as part of the company’s plan to offer stock options to its executives, say company officials.
Chriss W. Street, Comprehensive Care’s chairman and chief executive, said Arthur Andersen evidently overlooked what he described as its “enormous progress” in the past year. The company is restructuring its debt, has reduced liabilities with the Internal Revenue Service from $50 million to $5 million and has attracted new business, said Street, who heads a management team hired about a year ago to turn around the company.
Rudy Miller, an outside director who heads the company’s audit committee, questioned Arthur Andersen’s concerns about future litigation. He said he knows of no potential legal issues involving the company.
The company first revealed May 22 that Arthur Andersen had resigned as its auditor, saying the Newport Beach company no longer met the accounting firm’s “client profile.”
In a press release Monday regarding its decision to drop Comprehensive Care as a client, the accounting firm said: “In the current litigious business environment in the U.S., accounting firms are forced to assess risks associated with current and future clients.”
Comprehensive Care learned that the accounting firm was dropping it as a client when the company requested the auditor’s consent to use its 1993 and 1994 opinions in a planned SEC registration of executive stock options, said Street, Comprehensive Care’s chairman.
Street says earlier this year the company granted options to a group of key executives to purchase about 200,000 shares. Street was supposed to get about half of the options, he said.
The company must register the options with the Securities and Exchange Commission before executives can exercise them, he added. Because Arthur Andersen refused to give its consent, Street said, the company hasn’t gone ahead with the registration.
