- The Washington Times - Thursday, March 14, 2002

When should an accounting firm be held accountable? Arthur Andersen, the beleaguered firm that has been involved in some of the most spectacular accounting scandals including Enron, Global Crossing, Sunbeam and Waste Management may be about to find out. The Justice Department is considering filing criminal charges against Andersen for its role in shredding thousands of documents related to the Enron debacle.

Andersen, whose fortunes have been falling daily as one major client after another has fired the accounting firm, is desperately seeking a merger partner. It is also frantically pursuing a settlement with the Justice Department. The firm has reportedly offered a $750 million settlement in order to satisfy all Enron-related civil lawsuits, current and potential. The Enron bankruptcy, the largest in U.S. history, was the final destination of a wild, 16-month, downhill, roller-coaster ride that involved the evaporation of $70 billion of the energy-trading company's market capitalization.

The Enron fiasco has put Arthur Andersen in very hot water, and deservedly so. For years, Andersen had been certifying Enron's annual income statement and balance sheet. Those, of course, repeatedly showed record profits, which helped to inflate Enron's stock price. The soaring stock price, in turn, enabled Enron insiders to exercise stock options, selling those shares for hundreds of millions of dollars.

Andersen was well-paid for putting its seal of approval on those financial statements. In 2000 alone, Enron paid Andersen $25 million to audit its books. That same year Andersen collected another $27 million for consulting services; and its partners expected those consulting fees to balloon to $100 million.

This symbiotic relationship worked well until the house of cards began to collapse. On Oct. 16, Enron unexpectedly reported a $618 million loss for the third quarter and announced that past accounting machinations would require it to reduce shareholder equity by $1.2 billion. Four days before Enron made the blockbuster announcement, an Andersen in-house attorney e-mailed the accounting firm's lead auditor at Enron, reminding him of Andersen's policy of destroying outdated auditing records. Thus began a massive shredding campaign by Andersen. On Nov. 8, Enron informed the Securities and Exchange Commission that its Andersen-approved income statements for the past five years had overstated profits by nearly $600 million. Andersen did not issue a stop-the-shredding order until Nov. 9, the day after it received a federal subpoena.

Andersen clearly has a self-imposed problem. Any settlement should be out of the question. One thing is certain Andersen's record does not entitle it to the benefit of the doubt. Since Andersen insists that the issues be resolved now, the Justice Department has reportedly told the firm it must be prepared to plead guilty by today to criminal charges, which would presumably include obstruction of justice. Andersen has nobody to blame but itself.


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