Volcker Aims to Control Auditor
Andersen: The proposal by the former Federal Reserve chairman
calls for Justice Department to suspend its criminal prosecution of the firm.
Los Angeles Times
March 23, 2002
By JERRY HIRSCH, TIMES STAFF WRITER
Former Federal Reserve Board Chairman Paul A.
Volcker offered to take charge of the troubled and
rapidly diminishing Andersen accounting firm Friday
in what industry experts said was a last-ditch effort
to save the company.
Although the plan drew praise as perhaps the best
chance for Andersen to survive, Volcker said the
deal would be conditioned on the Justice
Department's agreeing to dismiss or suspend a
criminal indictment of the accounting firm. He said
the plan also would require the approval of a
"significant number" of Andersen partners.
Justice Department officials would not discuss the
offer but did not rule out the possibility of a deal. "In
any corporate criminal matter, the department takes
into account all of the appropriate considerations,
including not only any meaningful reforms but also cooperation and full
acceptance of responsibility," Justice Department spokesman Bryan Sierra said.
Under the takeover plan, Andersen's senior management would be overhauled
and the company would be governed by a new seven-member board, led by
Volcker.
Andersen is staggering under the indictment, its liability from the financial
meltdown of Houston energy trader Enron Corp. and the growing number of
clients defecting to rival firms.
Andersen named Volcker in February to lead an independent oversight board to
review its operations and procedures after the Enron debacle.
Volcker's intent is to create a model accounting firm that would forsake
consulting and other business to return to the industry's roots in auditing and tax
work.
"We are telling the partners that the time has come to make up their mind,"
Volcker said in an interview. "Are there Andersen partners who want to spend
the time and effort on rebuilding and reviving the firm? If not, the game is over."
The retired central banker made the proposal to Andersen executives Friday.
Andersen executives declined to say whether the firm's management has signed
off on the plan, instead issuing a statement that appeared supportive but fell short
of a definitive answer.
"This is a positive and constructive proposal," the statement said. "We hope that
the Department of Justice will carefully consider Mr. Volcker's proposal and
come to a conclusion based on the best interests of our capital markets."
As another condition for the takeover, Volcker said attorneys representing Enron
investors and employees in class-action litigation must agree to cap the firm's
liability "to an amount consistent with sharply reduced and diminishing resources
of the firm."
Experts were skeptical that plaintiffs would agree to those terms, and the initial
response from the University of California Board of Regents, the lead plaintiff in
the litigation, was not positive.
"Whoever is leading Andersen in the future does not, however, alter the nature of
Andersen's past role in the Enron fraud," said Trey Davis, spokesman for the UC
regents. "Without full discovery of those activities, it would not be appropriate to
comment favorably this early in the case upon a proposed limit on Andersen's
Enron liabilities."
Volcker said the class-action litigants needed to be realistic.
"You can't squeeze money out of a lemon, and there is not much there now," he
said.
He described Andersen as reeling from the defection of major clients and foreign
offices, combined with the pressures of the federal indictment on an
obstruction-of-justice charge for destroying documents sought in the probe of its
Enron work.
Volcker said he needed a response in a "matter of days" or the plan would die.
His new board to govern the company would include J. Michael Cook, former
chairman of accounting firm Deloitte & Touche; Russell Palmer, former dean of
the Wharton School of the University of Pennsylvania; and Charles Bowsher,
former comptroller general of the United States.
The other members are John Bogle, retired chairman of the Vanguard Group; P.
Roy Vagelos, retired chairman of pharmaceuticals giant Merck & Co.; and
former U.S. Sen. John C. Danforth of Missouri.
"As a group, we are interested in reforming the accounting profession, and we
believe that Andersen can be the vehicle and model for that reform," said
Volcker, 74. "Not one person on this board is interested in running Andersen as a
career."
Although accounting experts said they liked Volcker's plan, they noted that there
are significant obstacles.
"This looks like the showdown at O.K. Corral," said Lynn Turner, former chief
accountant for the Securities and Exchange Commission and an accounting
expert at Colorado State University. "Volcker has drawn a line in the sand, and
the partners have to decide if they are with him or against him."
Arthur Bowman, editor of the industry newsletter Bowman's Accounting Report,
said that even if the partners were to line up behind Volcker, it is not certain that
the Justice Department would be willing to dismiss or suspend its criminal
indictment or that attorneys in the class-action lawsuit would agree to a liability
cap.
Andersen's daily bleeding of major clients--which on Friday included Apache
Corp., Chicago Mercantile Exchange, Northern Trust Corp., Occidental
Petroleum Corp. and Waste Management Inc.--has cost the firm billings equal to
nearly 10% of its $4.3 billion in U.S. revenue last year.
Its affiliates in China, Hong Kong, Russia and New Zealand have forsaken an
Andersen-arranged merger with KPMG in recent days to hook up with other
firms.
Volcker appealed to the Justice Department to consider what he characterized
as the best interests of the financial community, which he said benefits from
Andersen's survival as an audit firm.
"Do they simply want to kill the firm, or is their purpose to see reforms?" Volcker
asked.
Paul Fishman, a former Justice Department lawyer who is in private practice,
said prosecutors are careful about which cases they bring, and he doubted that
they would drop the indictment at this early stage.
"I wouldn't rule it out, but I'd be surprised if they accepted" Volcker's proposal,
Fishman said. "It's very rare for the Department of Justice to dismiss an
indictment outright against a corporation."
Andersen employees, meanwhile, continued a series of public demonstrations in
support of the company against the Justice Department indictment on one charge
of obstructing justice.
In downtown Los Angeles, hundreds of Andersen employees rallied with chants
that could be heard from blocks away.
"This indictment affects the integrity of the firm I have been linked to for 13
years, and it's unfair," said Jan Miyoda, director of operations for the audit and
business advisory practices division in Los Angeles.
*
Times staff writers Edmund Sanders in Washington and Walter Hamilton, Jeff
Leeds and Elena Gaona in Los Angeles contributed to this report.
latimes.com * |
