Andersen Talks on Settlements Remain Stalled

Accounting firm Andersen continued its attempts to reach settlements with federal prosecutors and class-action lawsuit attorneys in separate meetings and discussions Wednesday but was unable to conclude agreements.

Sources familiar with the firm’s efforts to craft a deal with the Justice Department to defer prosecution of an obstruction-of-justice indictment said there were still significant issues to deal with.

The sources said that although both sides planned more discussions and progress had been made, it was unclear when or whether an agreement would be reached.

The talks are focusing on the wording of a deal under which Andersen would offer an admission of wrongdoing for destroying documents sought in the federal probe of Enron Corp.’s accounting and subsequent bankruptcy filing.

Andersen would admit wrongdoing, but stop short of pleading guilty. The firm would then enter a probationary period with the charges dropped if it enacted reforms and did not violate any laws.

Also Wednesday, Andersen attorneys met in New York with lawyers representing Enron investors and employees seeking to recover losses from the Houston energy trader’s Chapter 11 filing.

Those talks were snagged over the question of how plaintiffs could reach a settlement with Andersen that would not set a precedent limiting what it could collect from other defendants in the litigation, including banks and investment banks that worked for Enron, sources said.

Though the talks ended with the attorneys heading for the airport to return to their respective offices, a source familiar with the discussions said that the parties planned to continue negotiating.

Andersen has offered $250 million in insurance money and an additional $50 million in cash to settle the claims.

Meanwhile, more details came out on the structure of various deals to sell pieces of Andersen’s business to other accounting firms.

Regional offices and practice groups are looking to bolt for other firms, and a pattern for how these deals might get done is emerging, said Allan Koltin, an industry consultant helping to broker several deals.

Andersen has preliminary agreements to sell various offices and parts of its U.S. business to Deloitte & Touche, KPMG and leveraged-buyout firm Fox Paine & Co.

Generally, Andersen wants a “finder’s fee” payment of $100,000 to $200,000 for every partner who moves to a new firm, Koltin said.

Additionally, the acquiring company would have to pay an equipment fee for hard assets such as computers and office furniture that could approach $200,000 a partner, Koltin said.

The acquiring firm also would have to agree to pick up certain lease obligations and to offer employment for about eight non-partner Andersen professionals and two members of the support staff at their current wages, Koltin said.

The acquiring firms are in turn asking for total indemnification from Andersen’s liabilities, something that could be conferred only under a court-approved settlement with the claimants in the various suits against Andersen or through a bankruptcy proceeding.

Andersen has about 1,700 U.S. partners. If half left under such terms, the surviving firm would be able to raise $340 million, slightly more than the $300 million in insurance money and other cash Andersen has offered to settle the class-action lawsuit.

An Andersen representative said the agreements were not following a set formula but that it was clear that partners at the firm were considering outside deals as a way to protect their staffs and to make sure that clients continue to receive full service.

Still, he said, “a critical mass” of partners remained committed to a plan by former Federal Reserve Chairman Paul A. Volcker to transform Andersen into a smaller, audit-oriented accounting firm.

Also Wednesday, a panel of judges ruled that Enron shareholders and employees seeking billions of dollars in damages over the firm’s collapse must press their claims in federal court in Houston.

Possible conflicting interests in Houston, where Enron is based, would not jeopardize a fair resolution of nearly 100 suits to be consolidated in the federal court there, the panel concluded.

*

Bloomberg News was used in compiling this report.