Accounting Giant To Fight Indictment
The Arthur Andersen accounting firm plans to fight an indictment accusing it of obstructing justice by destroying documents in the politically charged Enron scandal.
Lawyers for the accounting giant may seek to have a federal indictment thrown out. At the very least, they say they will demand that the government name names when it comes to alleged document shredding.
The federal government Friday suspended new business dealings with Enron Corp. and its former accounting firm Andersen, citing evidence of misconduct by the fallen energy trader and the criminal indictment of the auditor.
Current contracts — some $35 million for Enron and $60 to $90 million for Andersen — are not affected by the action announced by the General Services Administration. That means that the government could still be doing business with the two firms up to five years from now, a GSA official said.
"To qualify as a responsible contractor, a company or individual must have a satisfactory record of integrity and business ethics," said the GSA.
Federal prosecutors announced Thursday that a grand jury in Houston had returned an indictment against the accounting firm last week. The indictment charges that Andersen employees engaged in the wholesale destruction of Enron-related documents.
Deputy Attorney General Larry Thompson says it's still possible that a plea agreement could be worked out with Andersen. The company had rejected any plea deal before the indictment.
Some legal experts think the Justice Department may be using the indictment against Andersen to pressure the accounting firm to assist in the Enron investigation. There have been allegations that lots of documents were destroyed at Enron's Houston headquarters.
The company faces more than legal problems. The accounting giant is fighting for its life. Many of the firm's top customers have gone elsewhere since its role in the Enron scandal was disclosed. Among those who have dropped Andersen are FedEx Corp., Delta Air Lines, Freddie Mac, Merck & Co. and SunTrust Banks.
Despite the drastic decline in business, Andersen has no plans to file for bankruptcy, but most experts say that may be the once-mighty accounting firm's best hopes to stop an exodus of its clients and employees, as well as finding a buyer to salvage its operations.
But filing for Chapter 11 bankruptcy would almost certainly signal the end of its 89 years as an independent company, according to those who track the industry.
"A bankruptcy would be a business strategy to save and protect as many jobs and assets as possible. But it means Andersen itself is done," said Arthur Bowman, editor of the industry publication Bowman's Accounting Report
CBS News Correspondent Anthony Mason reports that Chicago-based Andersen — one of the Big Five accounting firms — continues to maintain that only a few partners were responsible for shredding the Enron-related documents.
"It's unjustified to wipe out the whole firm for the actions of a few of its principles," said Andersen legal counsel Stanley Brand.
The Justice Department brought Andersen under close scrutiny following the accounting firm's admission that it had engaged in massive shredding of Enron-related documents as the energy trading company careened toward bankruptcy last fall. Just before the shredding began, the Securities and Exchange Commission had announced it was conducting an inquiry of Enron.
Pointing to top executives, the indictment said that shortly before the destruction began, Andersen's high-level management held a conference call to discuss the SEC inquiry.
The maximum penalty is a five-year term of probation and a $500,000 fine.
In a pre-emptive strike before the charges were announced, the accounting firm said the government had no basis to bring criminal felony charges against the company.
On Wednesday the firm sent prosecutors a letter outlining why it will not agree to any deal, and why it should not be indicted. Despite all its legal and business woes, the firm has decided to take its chances in court.
A guilty plea could bar Andersen from performing audits and approving financial reports that companies file with the Securities and Exchange Commission, the core of its business — unless Andersen were granted a waiver.
Millions of investors big and small lost money, and thousands of current and former Enron employees lost the bulk of their retirement savings — in accounts loaded with Enron stock that plummeted.