Andersen Wants Quick Trial on Obstruction Charge
Accounting Giant Faces Rising Number of Defections by Clients
By Jackie Spinner and Susan Schmidt
Washington Post Staff Writers
Saturday, March 16, 2002; Page E01
Arthur Andersen LLP plans to seek a trial quickly on the obstruction of justice charge filed against it, in the face of mounting defections by clients and overseas affiliates.
Rusty Hardin, an attorney for Andersen, said the accounting firm will ask the federal court in Houston to set a trial date in two weeks. Andersen representatives are scheduled to make an initial appearance on the charges Wednesday before federal Magistrate Judge Calvin Botley.
"Our position is we want as quick a trial as the court will give us. Under the speedy trial act it has to be within 70 days, and we will ask the court to do it much sooner," Hardin said.
The Big Five accounting firm was indicted on a single count for destroying documents and e-mails related to the investigation of Enron Corp., one of its biggest audit clients. Sources said Andersen is putting together a motion to have the case against it dismissed.
Andersen lawyers have called the criminal prosecution against the entire firm "baseless." The firm has acknowledged that improper shredding occurred but has blamed a handful of employees in its Houston office. In a statement released yesterday, Andersen attacked the Justice Department's indictment against it, offering a point-by-point analysis of the government's case, which Andersen concluded "entirely lacks substance."
"It is significant that the allegations of the indictment are couched in broad, vague, and conclusory terms," the statement said. "They offer no detail at all and fail even to identify by name the higher-ups at Arthur Andersen LLP who the government believes masterminded the document destruction."
In the meantime, Andersen is scrambling to keep partners and clients from fleeing. In a conference call yesterday, according to an Andersen source, officials of the accounting firm told partners that a merger with KPMG was still possible, although many accounting experts are skeptical that will happen because of Andersen's huge liabilities. KPMG declined to comment.
Andersen officials also told partners that their lawyers would meet with clients to explain why they think Andersen can win the obstruction of justice case brought by federal prosecutors, according to a source who heard the call.
But some major clients are not waiting around. Several, including Sara Lee Corp., Northeast Utilities and Brunswick Corp., said yesterday they were dropping Andersen as their auditor.
Others are considering a change. For instance, Rockville-based Washington Real Estate Investment Trust has used Andersen to audit its books for six years but now is soliciting proposals from Andersen's competitors.
"We've been very happy with Arthur Andersen," said Sara Grootwassink, Washington Real Estate's managing director of finance. "But you have to have a plan. We're talking to people right now."
Mike Coke, chief financial officer for San Francisco-based AMB Property Corp., an industrial real estate developer that uses Andersen to audit its books, said his company is also talking to other accounting firms.
"It's heartbreaking. Our Andersen partner is being very gracious, and we're loyal to Andersen, but we now need to develop a contingency. It's been a very tough conversation," said Coke, who worked for Arthur Andersen before joining AMB four years ago.
Some legal experts said Andersen's remaining clients are feeling pressure to drop the firm.
"Audit committees have to worry about liability," said Lynn Stout, a professor of securities regulation at the University of California in Los Angeles. "The safest thing by far is to drop Arthur Andersen."
Former Securities and Exchange Commission chairman Richard C. Breeden said Andersen has contributed to this environment. "Andersen itself has put the audit committees in a bind by predicting their own failure," he said.
Breeden said that, given Andersen's dire claims that an indictment would amount to a death sentence, clients must ask, "Will they be there? Will they focus on doing a good job? Will their people stay or will everybody bail out and leave the client in the lurch."
Overseas affiliates are also leaving, concerned that the tarnished reputation of the U.S. firm will hurt them. Arthur Andersen Worldwide, based in Geneva, is an organization of loosely affiliated partnerships located around the world that share some revenue.
Arthur Andersen's Spanish and Chilean businesses are leaving the firm's international network and Italian affiliates are considering doing so, according to Bloomberg News. Andersen's Chilean affiliate plans to join another major accounting firm in the "very short term" because of the indictment, it said in a statement published in the newspaper El Mercurio.
Partners at Arthur Andersen's Vienna office had a two-hour "town hall" meeting yesterday morning at a nearby Marriott hotel to discuss the week's events. "The purpose was to stand up and say what's on your mind," said Marc E. Andersen, a partner (who is not related to the founders of the company).
"It's been quite a week," Andersen said. "We've gone from a possible indictment to an indictment to a possible merger, and we wanted to spend some time with our people to talk through those things."
He said employees said they were glad to hear that the accounting firm planned to fight the indictment from the Department of Justice. "This indictment has been a rallying cry for our people," Andersen said. "I'm not aware of any mass exodus of people."
But in Chicago, one attorney said he is representing several partners "scrambling" to get away from Andersen. He said they hired him because they want to leave the firm and take their clients with them, but fear the "non-compete" clauses they signed with Andersen will make that difficult to do if the firm remains open.
The attorney said his clients have described the scene inside the Andersen Chicago headquarters as one of "chaos," with some partners learning about the newest developments from news reports.
One 43-year-old partner in Andersen's Chicago office, Dan Broadhurst, said he was angry at the government's indictment. "The actions they've taken are doing a great deal of harm," said Broadhurst. "It's 28,000 faces and multiply it by their family members. These actions are capricious and malicious. I'm absolutely outraged how the government has taken it upon itself to destroy this company."
Some Andersen partners who are not involved with audits have asked top officials if they would consider selling off pieces of the firm's business, such as tax and consulting.
One source said they were told that Andersen's chief executive, Joseph F. Berardino, only wants to sell the whole firm, not parts of it.
He said that has caused some partners to joke that if Andersen were the Titanic, the passengers would be told that because there were not enough life boats, nobody could get on any of them.
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Staff writers Kirstin Downey Grimsley, Dana Hedgpeth and Glenn Kessler contributed to this report. Grimsley reported from Chicago.
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