egotiations about a possible sale of Arthur Andersen all but collapsed yesterday, even as senior executives of the firm decided that it would not plead guilty to charges of obstruction of justice in the Enron (news/quote) case, people close to the firm said.
Signaling the new resolve, lawyers for the company delivered a letter to the Justice Department last night, assailing the planned charges as "a gross abuse of governmental power." The aggressive posture was taken just hours before a government- imposed 9 a.m. deadline today in which Andersen, the accounting giant, had the choice of pleading guilty or risking indictment.
And it came as the two most likely bidders for Andersen withdrew from negotiations with the firm, citing concerns about the liabilities it faced from the Enron debacle. Now the only glimmer of hope for a deal comes from a third contender, KPMG, which has been considered unlikely to buy Andersen's American division.
Separately, officials from the Securities and Exchange Commission have begun discussing contingency plans with the rest of the Big Five accounting firms on how to handle a possible collapse of Andersen, according to people who have taken part in the discussions. Such a collapse, if it occurred, would require a virtually simultaneous transfer of auditors by almost 20 percent of the publicly traded companies in the United States.
Even as circumstances grew increasingly dire, lawyers for the firm disclosed to the government that document shredding at Andersen last fall was more widespread than previously believed.
The lawyers informed prosecutors that partners with Andersen's Houston office, which shredded thousands of Enron records last fall, also directed the destruction of documents related to Enron in at least two other offices.
The shredding and other document destruction began just a day after Andersen partners in Houston learned that the S.E.C. was planning to request auditing records related to Enron for a preliminary inquiry that had already begun, according to the confidential findings of an investigation conducted for the firm.
But the report — a copy was obtained by The New York Times — says that no evidence has emerged showing that top executives at Andersen's headquarters in Chicago knew anything about the effort.
Andersen lawyers are using the findings to argue that even if individual Andersen partners in Houston may have committed a crime, there is no evidence to support charging the entire firm.
The flurry of developments came amid growing concern among accounting industry executives about the survival of Andersen, which has been struggling with large-scale defections of clients even as it battles criminal charges.
Many industry experts see a sale of the firm as the best alternative for salvaging Andersen's operations, but that now seems far less likely.
One potential bidder, Ernst & Young, withdrew from the negotiations early yesterday, citing concern about Andersen's liabilities in the Enron matter. Then, last night, Deloitte Touche Tohmatsu, which had been considered the most likely bidder for Andersen, also withdrew.
"We tried to step into this situation with Andersen and be helpful," James Copeland, the chief executive of Deloitte, said in an interview last night. "Unfortunately, we were unable to find our way through to a solution."
That leaves KPMG as the only firm that has not walked away from the table.
A member of the negotiating team for KPMG has, however, told associates that he sees little prospect for a deal that would salvage Andersen.
The Andersen letter to the Justice Department — sent to Michael Chertoff, the chief of the department's criminal division — was written by Richard J. Favretto of Mayer, Brown, Rowe & Maw, one of Andersen's law firms. It contends that the government cannot reasonably conclude that the evidence merits a prosecution of the entire firm.
Though several Andersen "partners and employees unquestionably exercised poor judgment, a criminal prosecution against the entire firm for obstruction of justice would be both factually and legally baseless," Mr. Favretto wrote.
According to the letter, Andersen officials had requested the opportunity to appear before the grand jury to provide the firm's side of the story but were refused by prosecutors. Moreover, the letter says, the prosecutors had refused an offer to meet with the principals of the firm today to discuss the planned prosecution.
"The department proposes an action that could destroy the firm, taking the livelihoods from thousands of innocent Andersen employees and retirees," the letter says, adding that the prosecution would also "substantially reduce any possibility that claimants against the firm will obtain a recovery."
Mr. Favretto also said that prosecutors were taking the unusual tack of planning to prosecute a company for actions disclosed to the government by the company itself.
Finally, Mr. Favretto wrote, the government's decision threatens Andersen's ability to continue as a functioning firm.
"It is beyond question that the institution of criminal felony proceedings would place the survival of Arthur Andersen in grave jeopardy," he wrote.
Ultimately, the lawyer said, the government is taking an aggressive stance in a case where the evidence against the company is limited.
"We submit that there is no basis for the government to take the unprecedented step of bringing felony criminal charges against Arthur Andersen L.L.P. when the evidence of criminal misconduct on the part of the firm as an institution is so flimsy," he wrote.
One hurdle to Andersen's legal argument, however, is an earlier settlement it reached with the S.E.C.
involving another client, Waste Management (news/quote), whose audited financial results proved to be deceptive |
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