- The Washington Times - Friday, April 19, 2002

Arthur Andersen LLP yesterday broke off attempts to reach a settlement with the Justice Department over charges that it obstructed justice by destroying Enron audit records.
The Big Five accounting firm was unable to reach a deal satisfying the demands not only of Justice and the Securities and Exchange Commission, but also of Enron shareholders, who blame Andersen in part for $35 billion of Enron stock losses.
In recent days, Andersen appeared close to reaching a deal with U.S. attorneys, who had offered to defer prosecution on the obstruction charges if the Chicago firm admitted wrongdoing and cooperated in the department's investigation of accounting abuses at Enron Corp.
But the negotiations, which had continued off and on for the past two weeks, snagged on how to word language describing Andersen's responsibility for the document destruction.
With many issues still outstanding and the May 6 start of the trial looming, Andersen told the department it was not in a position to make a deal.
As a result, "the department is continuing to prepare for trial," said Justice spokesman Brian Sierra.
Andersen has sought to avoid a guilty plea, contending that the deletion of thousands of e-mail messages and other documents was carried out primarily by its lead Enron auditor, David Duncan.
Mr. Duncan pleaded guilty to directing the destruction earlier this month under a cooperation agreement that undercut Andersen's defense and put considerable pressure on the firm to settle the case.
Andersen fears a guilty plea would prevent it from staying in business as an auditor and would expose the company to severe sanctions by state authorities.
Perhaps the biggest obstacle to the kind of global settlement sought by Andersen, however, was its inability to get the shareholders in the civil fraud suit to accept a much-reduced settlement.
The shareholders in recent days refused to accept a $300 million offer from Andersen unless the accounting firm persuaded other defendants, including several Wall Street firms that participated in questionable Enron dealings, to renounce their right to similarly reduced settlements.
Without the agreement of shareholders, a guilty plea in the criminal case would have exposed Andersen to a financially debilitating judgment in the civil case, causing further client defections and crushing its hopes of staying in business.
Since Enron collapsed late last year, Andersen has lost 180 audit clients, most since its criminal indictment was unsealed March 14.
Sources close to negotiations said Andersen also had balked at the three-year probationary period the Justice Department proposed for deferring prosecution.
Justice attorneys argued that the deal would avoid the risks of a courtroom conviction, which would prompt many states to revoke Andersen's operating license.
Andersen also was leery that any pledge to fully cooperate in the prosecution of Enron could endanger its prospects for attracting future audit clients, the sources said.

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