- The Washington Times - Saturday, April 6, 2002

From combined dispatches
Arthur Andersen LLP and U.S. prosecutors started discussions yesterday of a possible settlement of charges that the accounting firm obstructed justice when it destroyed Enron Corp. audit documents in the fall, sources familiar with the case said.
The once top-rated accounting firm has been struggling to survive amid a mass defection of clients since the Justice Department indicted it March 7.
The meeting yesterday at the department's headquarters in Chicago was the first since the indictment and could signal a breakthrough, as the department previously rejected Andersen's overtures to settle the case.
Attorneys for Andersen requested yesterday's meeting, and government officials agreed to it, though neither side would discuss the substance of the negotiations, the sources said.
The Justice Department might agree to defer prosecution if the accounting firm publicly admits that it acted illegally, the sources said. But Andersen partners are trying to avoid an admission of outright guilt so that the firm can stay in practice as an auditor.
The firm has lost more than 100 clients in recent weeks. KeySpan Corp., the largest natural-gas distributor in the northeastern United States, became the 31st company in the Standard & Poor's 500 Index to drop Andersen since its longtime client Enron Corp. declared bankruptcy Dec. 2.
The client exodus is forcing Andersen to cut more than 6,500 jobs and sell most of its non-audit businesses, following a plan devised by former Federal Reserve Chairman Paul Volcker to salvage the firm.
Andersen is also trying to settle lawsuits that accuse it of taking part in defrauding Enron investors and former employees.
Justice Department spokesman Bryan Sierra declined to comment on yesterday's talks. Andersen spokesman Patrick Dorton didn't immediately return phone calls seeking comment.
Andersen leaders told the firm's 1,600 U.S. partners on a conference call Thursday that a settlement of the Enron shareholders' suit could be imminent, participants in the call said. Last week, Mr. Volcker said that only "technical legal issues" remained to block a settlement.
The obstruction of justice prosecution is risky for both sides. The government might lose at trial, while Andersen could fall into bankruptcy whether it wins or loses the case.
Jacob Frankel, a former senior counsel at the Securities and Exchange Commission, said the settlement negotiations appear to be "at a very sensitive stage" since both sides are staying mum after sparring in public over the charges for weeks.
The trial against Andersen is scheduled to start May 6 in Houston.
Meanwhile, plaintiffs in a civil lawsuit, also being waged in Houston, are asking U.S. District Judge Melinda Harmon to bar Andersen's efforts to sell assets to raise cash.
Judge Harmon issued an order late Thursday setting a Monday hearing on the request, hours after Andersen announced a tentative plan for a "significant" number of its U.S. tax partners and professionals to join rival Deloitte & Touche LLP.
If a court doesn't stop the sale, "there won't be anything left to collect from," Andrew Mytelka, an attorney for American National Insurance Co., said yesterday.
The insurers' motion for a temporary injunction against asset sales also seeks to bar Andersen from releasing partners and employees who quit the firm from noncompete agreements. Such agreements prohibit workers from taking clients with them if they join other auditing firms.
Andersen spokesman Patrick Dorton said the claim was without merit.
Other insurers listed on the motion are American National Investment Accounts, Standard Life and Accident Insurance, Farm Family Life Insurance and National Western Life Insurance.
The companies originally filed their own action, which has been consolidated with a larger securities-fraud case brought by the University of California, Amalgamated Bank, several state pension funds and other large investors that lost millions of dollars in Enron's failure.
Trey Davis, spokesman for the university, the lead plaintiff, said yesterday that larger plaintiffs support American National's effort.
"Our general position is the plaintiffs are strongly opposed to any Andersen transaction or business combination that seeks to shield its assets from liability in the Enron case," he said.
Terms of the tentative agreement Thursday between Deloitte and Andersen were not disclosed.
Andersen's tax unit employs about a quarter of its U.S. work force of 28,000 and brought in $1.27 billion in revenue last year about one-third of the firm's total. Andersen hopes to close the deal as soon as April 30.
Separately, the Wall Street Journal reported yesterday that rival KPMG International had agreed to acquire 400 staffers and 40 partners from Andersen offices in Seattle; Portland, Ore.; Salt Lake City; Boise, Idaho; San Francisco and Los Angeles.
An Andersen source familiar with the matter confirmed that a memorandum of understanding had been signed with KPMG, but gave no details. A spokesman would not confirm the memo, and a KPMG spokesman declined to comment.
Overseas, Andersen Worldwide conceded defeat this week in its strategy of merging its non-U.S. operations en masse with those of KPMG, after several countries' Andersen affiliates bolted on their own. Affiliates in Australia, China, Hong Kong, New Zealand, Russia, Singapore, Spain and Thailand decided to broker their own deals. Yesterday, Andersen Middle East announced an agreement to merge practices with PricewaterhouseCoopers.

Staff writer Patrice Hill contributed to this report.

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