Andersen Is Closer to Settlement, Sources Say

Andersen and the Justice Department edged closer to a settlement of the accounting firm’s criminal indictment Friday, with negotiations now centered on the wording of a proposed admission of wrongdoing by the firm, according to people familiar with the talks.

Such a deal would defer prosecution of the government’s obstruction-of-justice charge against Andersen for destroying documents sought in the federal probe of Enron Corp.’s accounting and subsequent bankruptcy. In effect, Andersen would begin a probationary term during which it would be required to institute companywide reforms and not commit new infractions.

An agreement could be reached next week, according to people familiar with the talks. It would avoid trial in the case, scheduled to start May 6.

People familiar with the talks said that in addition to the wording there were other issues that could take some days to resolve, but they did not elaborate.

Officials at the Justice Department confirmed that negotiations were continuing, but they declined to comment on the likelihood of reaching a settlement or when an agreement might be reached.

Though Andersen sought a deferment deal last month, its legal position changed significantly Tuesday when David B. Duncan, its top Enron auditor, entered a guilty plea on a similar obstruction-of-justice charge for document destruction. He also agreed to cooperate with the government in its investigation.

Duncan’s plea undermined Andersen’s argument that there was no criminal intent to obstruct justice, legal experts say, and the firm apparently became more flexible in its talks with the Justice Department.

Andersen has wanted to avoid entering a guilty plea because federal rules generally block a person or company convicted of a felony from auditing public companies.

Progress in resolving the criminal indictment comes amid signs of a rift within the firm.

Andersen’s leadership believes resolving the indictment is critical to transforming the firm into a smaller, audit-oriented business.

Rank-and-file partners, meanwhile, want to see an orderly dismantlement of the business that would leave them free to work for other firms, said Allan Koltin, a consultant brokering deals between Andersen partners and other firms.

Many of these partners already are negotiating deals to take offices and clients to other firms on the expectation that Andersen can’t survive much longer, he said.

KPMG looks to be the beneficiary of a proposed agreement to acquire large portions of Andersen’s audit practice, Koltin predicted.

Andersen already has a signed memorandum to transfer half of its tax practice to Deloitte & Touche and another to sell the practice to its managers and leveraged buyout firm Fox Paine & Co.

Two second-tier firms, BDO Siedman and Grant Thornton, are expected to pick up much of Andersen’s mid-size company business, Koltin said.

All these agreements, however, must devise ways to deal with claims against Andersen for its work for Enron and on other problem audits.

The accounting firms involved have not said how they will protect themselves from the liabilities.

Among the ideas floated are a sale of the firm through a bankruptcy and the establishment of a restitution fund.

Enron investors say they lost billions of dollars because of the Houston-based energy trader’s faulty accounting.

Another issue is how much of Andersen’s business will be left to acquire. Rival firms already have won the business of its public company audit clients.

Andersen lost at least a dozen more clients Friday, including May Department Stores, a $3.2-million account.

Andersen has lost about 200 public company audit clients since December--about 10% of its business, and the rate of defections is increasing.

And its affiliations with 83 overseas partnerships has broken apart. Those foreign offices are arranging their own mergers independently.

Koltin estimates that Andersen has lost about a third of what he believes was once $4.5 billion in U.S. revenue.

What’s left of the business could sell for $600 million to $700 million, he said.

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Times staff writer Eric Lichtblau in Washington contributed to this report.