Settlement Talks With Andersen Fail

Settlement talks between the Justice Department and Arthur Andersen collapsed Thursday, complicating the government’s efforts to pursue fraud allegations against Enron Corp. as well as Andersen’s efforts to survive.

After weeks of closed-door talks that appeared headed for a deal, lawyers for Andersen informed federal prosecutors that they would not accept the government’s terms for settling criminal allegations related to the firm’s destruction of documents in the Enron case.

Andersen wanted to keep the plea talks open, but Justice Department lawyers, working against an internal deadline, declined and decided to move forward with the scheduled May 6 trial on an obstruction of justice charge, said Rusty Hardin, Andersen’s defense attorney.

Andersen “requested that we keep [the settlement offer] open, but with the trial date looming, we could not. It’s off the table,” said a Justice Department official. “There’s nothing more for us to negotiate.”

But Hardin left the door open for further talks.

No single issue ended the negotiations, Hardin said. Rather, there were several outstanding issues dividing both parties.

“The two sides had such different views of what Arthur Andersen could reasonably comply with in return for deferred prosecution of the charge,” Hardin said.

He said that the negotiations with U.S. Atty. Leslie Caldwell were “cordial and in good faith” but that the goverment’s “demonic view” of Andersen made it hard to reach an agreement.

Lawyers for Andersen and the Justice Department first met in Washington two weeks ago.

Talks had intensified since then, and the two sides appeared to have reached the basic framework for an agreement securing Andersen’s full cooperation in the Justice Department’s probe into whether Enron executives used fraudulent practices to conceal massive losses.

The Andersen agreement would have been structured around a “deferred prosecution,” meaning that Andersen would effectively be put on probation for several years. In such an arrangement, the criminal charges would be dropped once Andersen’s cooperation in the Enron probe and its enactment of internal management reforms were completed.

The decision by former Anderson auditor David B. Duncan to plead guilty last week to a felony obstruction charge stemming from his role in the destruction of Enron-related documents put still more pressure on Andersen to reach a deal.

Officials close to the talks had signaled since late last week that a formal plea deal could be announced any day.

Although neither side was willing to identify the ultimate deal-breaker, conflicts appear to have centered on several areas, including the effect that Andersen’s cooperation in the Enron probe would have on how other clients view its commitment to maintain confidentiality.

Talks also were complicated by Andersen’s desire to work out a simultaneous resolution of related civil lawsuits and potential actions by the Securities and Exchange Commission.

Legal observers said the SEC’s ongoing investigation could represent an even greater threat to Andersen than the Justice Department’s criminal indictment.

“If I were going to make a judgment as to why this broke down, I would wonder whether Andersen was seeking a global settlement of all these actions,” including the SEC probe, said David S. Ruder, a securities law professor at Northwestern University and former SEC chairman. “If Andersen is seeking viability, they’d want to resolve all of that at once.”

Andersen has lost more than 10% of it 2,300 public U.S. audit clients and at least $600 million in audit revenue. On Thursday, Rupert Murdoch’s News Corp. and Fox Entertainment Group Inc., as well as 10 other companies, dropped Andersen.

Many business and legal observers believe that Andersen’s future viability depended at least in part on the firm reaching a deal, rather than going to trial, having its skeletons aired publicly and risking a criminal conviction.

But the impasse in plea talks could hurt the Justice Department as well, experts said, because a deal with Andersen had promised authorities the prospect of the company’s full cooperation in dissecting the complexities of Enron’s business arrangements.

Prosecutors can still subpoena Andersen and its employees for access to such information, but the Justice Department may have lost a valuable partner in its probe, observers said. “The Justice Department has lost some of its clout over Andersen,” Ruder said.

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Lichtblau reported from Washington, and Hirsch reported from Los Angeles.