Volcker Plans to Make Case for Andersen
Former Federal Reserve Chairman Paul A. Volcker said Friday that accounting firm Andersen, having accepted his reform proposal, planned to open talks with the Justice Department over dropping its indictment in the Enron Corp. case.
But there was no indication that the Justice Department, incensed by Andersen’s legal and public relations tactics, had any intention of backing off. Federal investigators appeared to be working toward getting a second indictment that would name individuals instead of just the firm, one former federal prosecutor said.
Volcker, whose team hopes to rescue and then govern the stricken Big Five accounting concern, said at a Manhattan news conference that a “critical mass” of partners supports his plan for a slimmed-down, ethics-friendly Andersen but that the idea won’t work unless the criminal charges were withdrawn.
Noting that the Easter and Passover holidays are times of “reflection and penance and resurrection,” Volcker said Andersen’s posture toward the Justice Department was “not a matter of confrontation but of cooperating together to get reform in the common interest.”
The chairman of Arthur Andersen Worldwide said time was running out for the U.S. partnership to cut a deal with the Justice Department for it to have any hope of maintaining its global network of affiliates. Many overseas affiliates already have announced plans to split from Andersen and ally with Big Five rivals such as KPMG or Ernst & Young.
Aldo Cardoso, Paris-based head of Andersen Worldwide, the accounting firm’s global division, said in an interview after Volcker’s news conference that it was “a matter of days, if not hours” before the bulk of the foreign affiliates defected. There would be no way to keep the network together if Andersen remained under indictment, he said.
Andersen has lost nearly 100 clients in the wake of the Enron scandal. Its chief executive and worldwide managing partner, Joseph F. Berardino, said Tuesday that he would step down as soon as an interim successor is named, which could come at a meeting Tuesday in London.
Volcker’s plan, which Andersen’s 1,700 U.S. partners reluctantly embraced during a five-hour teleconference Thursday, calls for the firm to sell its consulting business and most of its tax practice and return to what Volcker called its “historical roots” as a pure auditing firm.
The makeover would remove the conflict between auditing and consulting work that Volcker said led Andersen into its current problems. It also would shrink the firm significantly. About 60% of Andersen’s partners are on the consulting side, said C.E. Andrews, one of two partners selected to manage the transition under the Volcker plan.
Volcker could not say how many workers would lose their jobs.
The March 14 federal indictment accuses Andersen of obstruction of justice in what the government described as a broad effort to destroy documents and conceal evidence of wrongdoing in the case of its former client Enron--an effort that involved several Andersen offices in the United States and London.
Andersen got another black eye Monday when the government unveiled damning details of the firm’s role in an alleged cover-up of accounting wrongdoing in the early to mid-1990s at Waste Management Inc. Andersen settled that case in June with a record fine of $7 million and a promise to abide by securities laws in the future.
Nevertheless, Andersen decided against settling the Enron case and pleading guilty to criminal wrongdoing. Instead, the firm attacked the indictment as “an extraordinary abuse of prosecutorial discretion.” It successfully pushed for an early trial date of May 6, and it launched an advertising and promotional campaign, recruiting legendary UCLA basketball coach John Wooden to decry the indictment.
Prosecutors lashed back in a court filing Thursday that accused Andersen of trying to “flood the public record with slanted and outright false” statements about the government’s case.
Andersen’s aggressiveness may have backfired and given the government even more reason to stand its ground, John C. Coffee, a securities law professor at Columbia University, said Friday.
“The [Justice Department’s] fear would be that if they drop the indictment at this stage, any future indictment of a corporation will invite the same kind of public relations battle, cheerleader teams and drama school for corporate executives,” Coffee said.
Justice Department spokesman Bryan Sierra said Friday that the government’s position regarding Andersen had not shifted, “regardless of changes they make or who’s in charge.”
Any settlement must contain three elements, he said: “meaningful reform, cooperation and full acceptance of responsibility.”
Legal experts said the government would not consider anything short of a guilty plea as full acceptance of responsibility.
Andersen believes that a criminal plea--which would bar it from auditing public companies--would doom the firm.
Prosecutors disclosed this week that they had impaneled a special grand jury to “continue investigation of all criminal activity related to the demise of Enron.”
Former federal prosecutor Christopher Bebel, a partner in Houston law firm Shepherd, Smith & Bebel, believes that prosecutors are considering indicting individuals, which would strengthen their case against the audit firm.
Meanwhile, the various factions involved in a potential settlement of claims against Andersen and Enron remained far from a deal, said Eric D. Green, a Boston University law professor appointed to mediate the legal dispute involving former Enron employees, shareholders and the two firms. He said that “there can be no assurance that an agreement will be reached.”
Also Friday, Andersen said its insurance carrier refused to pay $217 million to settle lawsuits stemming from its audit of a failed Arizona investment group. An Andersen spokesman declined to say why the payment was refused, but the action raised a question about the firm’s ability to pay future settlements.
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Times staff writers Jeff Leeds and Walter Hamilton in Los Angeles contributed to this report.
