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Non-Tech : The Enron Scandal - Unmoderated -- Ignore unavailable to you. Want to Upgrade?

To: Raymond Duray who wrote (1919)	3/16/2002 11:44:01 AM
From: stockman_scott	Respond to of 3602

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. _______________________________________ Staff writers Kirstin Downey Grimsley, Dana Hedgpeth and Glenn Kessler contributed to this report. Grimsley reported from Chicago. © 2002 The Washington Post Company

To: Raymond Duray who wrote (1919)	3/16/2002 12:05:36 PM
From: stockman_scott	Respond to of 3602

<<...Andersen says it will fight the charges and stay in business. It is probably not too late for Andersen to refute the obstruction of justice charges in the best way possible: promoting justice by revealing the inner workings of Enron. Its partners may know more about Enron and its top executives than anyone outside Enron itself. Andersen has said that it has already been able to restore or reconstruct most of the documents it destroyed...>> Andersen Indictment And Consequences By Dan Ackman Forbes.com Friday March 15 No good deed goes unpunished. In a parade of "didn't knows" and "talk to the other guys," Arthur Andersen was the one entity that came forward and accepted responsibility in the Enron affair--admitting it had shred Enron-related documents. Now that act has led to the first indictment in a case that is much bigger than Andersen, a case that shined a harsh light on the accounting profession, Wall Street and the wider business community--and which has also affected Congress and cabinet secretaries. Thursday, the U.S. government charged Andersen with a single count of obstruction of justice, saying the firm destroyed "tons of paper" and deleted huge numbers of computer files on its audits of Enron (Other OTC:ENRNQ.PK - news) . "The firm sought to undermine our justice system by destroying evidence," said Deputy Attorney General Larry Thompson at a news conference in Washington. The indictment was returned last week by a federal grand jury in Houston, where Enron is based--and where the entire United States Attorney's Office has recused itself from prosecuting Enron itself, an indication of how deep Enron's tentacles had reached into the Texas city. The Justice Department gave Andersen until 9 A.M. yesterday to agree to plead guilty. Andersen admits its employees shredded documents, but says that its intention was not to obstruct justice and that top management in its Chicago headquarters was unaware. For the Justice Department, Andersen--with its admission on the record--was low-hanging fruit. The obstruction of justice charge comes before there has been a single charge of an underlying crime. While no one doubts that other criminal charges will be filed against Enron, its executives and possibly against individual Andersen partners, for now the indictment alleges a cover-up without a crime. That the cover-up is worse than the crime is a mantra often heard in Washington. But even in Watergate, the scandal that originated this bit of wisdom, there was a crime charged first of all--the break-in at the Watergate Hotel. But the Justice Department says the destruction of documents and e-mails was much broader than Andersen's management said, and that it was done in Portland, Ore., Chicago and London as well as Houston. It says Andersen was aware of a wide range of unfavorable financial information about Enron that was unavailable to the investing public. "Andersen and Enron...improperly categorized hundreds of millions of dollars" as an increase in shareholder value, the indictment says. Just days before the destruction began, Enron corrected its books, reporting a $1.2 billion drop in the company's value. The indictment alleges that Andersen knew the reasons for Enron's restatements--which had not yet been fully disclosed--and that it improperly characterized numerous charges against earnings as "nonrecurring" even though the accountants knew Enron "had no basis for concluding that the charges would in fact be nonrecurring." Having failed in its plea negotiations, Andersen now calls the indictment "without precedent...an extraordinary abuse of prosecutorial discretion [and] a gross abuse of government power." It says it never got to tell the grand jury its side of the story--that it had no criminal intent and that the government has ignored its cooperation in the matter. In recent weeks, Andersen has tried without apparent success to sell itself to a rival big five accounting firm. Now it will have to stop negotiating with both its rivals and the Justice Department--and start defending. It will have to show backbone, the absence of which got it into trouble in the first place. The question for Andersen is whether or not its business can survive while fighting the charges. Dozens of clients have already dropped the firm as their auditor and more are certain to follow, as public corporations send their proxy statements--including the approval of auditors--to shareholders. Fearing that Andersen might not be able to carry out its duties in its current state, the U.S. Securities and Exchange Commission took the extraordinary step of allowing former Andersen clients to file unaudited financial statements, with audited records due 60 days later. The maximum penalty is a five-year term of probation and a $500,000 fine. But the real penalty if convicted would be the impact on its right to do business in front to the SEC and on its licenses with various state commissions. "It shouldn't be a surprise to anyone that serious charges have serious consequences," Thompson said. "It would be unfortunate for a criminal justice system if any individual or any entity could say that he or she or it was too big or too important to be indicted." With the Enron cloud hanging blacker than ever, Andersen may be a goner. Even before Enron, it faced scandals involving Waste Management (NYSE:WMI - news) , Sunbeam, Baptist Fund and Global Crossing (OTC BB:GBLXQ.OB - news) . Indeed, some it its partners have reportedly suggested that the firm should disband and let the partners go their separate ways. Andersen, founded in 1913, and with 85,000 employees in offices all over the world, is a more substantial enterprise than the 21,000-employee Enron ever was--despite the energy trader's mythical position as the nation's seventh-largest company. Enron's pipeline operations can be run by others. Its trading operations, which accounted for 90% or more of its revenue, disbanded without a whisper of impact in the wider economy. The disbanding or bankrupting of Andersen, which provides a necessary service for roughly 2,500 public companies and many private ones as well, would have a more dramatic impact. Andersen says it will fight the charges and stay in business. It is probably not too late for Andersen to refute the obstruction of justice charges in the best way possible: promoting justice by revealing the inner workings of Enron. Its partners may know more about Enron and its top executives than anyone outside Enron itself. Andersen has said that it has already been able to restore or reconstruct most of the documents it destroyed. By coming completely clean it may be able to restore some of its reputation. Unless of course Andersen's role in Enron's crooked dealings is worse than is now known. If that's the case--if for example, it played an active role in guiding Enron's schemes--then it may deserve its fate.

To: Raymond Duray who wrote (1919)	3/16/2002 12:20:14 PM
From: bonnuss_in_austin	Read Replies (2) \| Respond to of 3602

Re: V&E. Roy Hutchinson, hubby of Kay Bailey, is/was.. ... a bonds specialist in the law firm of V&E. Will post links if and when I can find and other comment. bia

To: Raymond Duray who wrote (1919)	3/16/2002 10:01:16 PM
From: stockman_scott	Respond to of 3602

Skilling's Sgt. Schultz defense peeves CEOs usatoday.com 03/12/2002 - Updated 09:42 PM ET Skilling's Sgt. Schultz defense peeves CEOs If a CEO doesn't know that his company is about to sink faster than an olive in a martini, then what the heck does a CEO actually know? Seems like a ripe time to ask that of some CEOs, considering the current sullied public image of the job. These days, the most famous CEO — ex-CEO, more precisely — is Enron's Jeff Skilling. Although, former General Electric CEO Jack Welch is climbing the fame charts, now that his nickname has changed from "Neutron Jack" to "Hot Love Machine Jack." Anyway, with the entire nation paying attention, Skilling testified before the House and again before the Senate that he didn't know his company was about to crumble. In one reply, Skilling said, "This was a tragedy. I had no idea the company was in anything but excellent shape." Rep. Ed Markey, D-Mass., called Skilling's testimony the "Hogan's Heroes Sgt. Schultz defense." But that's the wrong character. Skilling has shown us that the role model for today's CEO is Col. Wilhelm Klink. Klink never left his spacious office, which he kept quite spiffy for a prisoner-of-war camp. He got information from only one ineffectual line manager (Schultz) who used ignorance as an excuse. And a second-tier executive (Hogan) ran a rogue operation right under the chief's nose. Oh, and when the outside directors (those Gestapo guys) showed up, Klink reported that everything was fine. See? Just like Skilling. I bet he read one of those books that management consultants write, like The Stalag 13 Way or Klink Rules! How to Stay Oblivious Yet Keep Your CEO Perks. All of that makes CEOs look like either goofs or scoundrels, and other CEOs are pretty steamed about it. Unfortunately, the other CEOs would go off the record and rant, and then only some would go back on the record and be more tactful. So I can't tell you the really good stuff. I can tell you that in describing his feelings about Enron's executives, one CEO used words I couldn't have put in the newspaper anyway. When the CEOs settled down, they said something that, at first, sounded a little alarming: CEOs don't know a lot of things that go on in their companies. It would be impossible. "There is an overwhelming amount of information," says Royal Farros, who had been CEO of Internet company iPrint and now is chairman. Here's a guy who runs an information-industry company, and despite all the computers and software and BlackBerrys and cell phones out there, he finds it impossible to collect and digest all his company's internal stuff. "I put in 70-plus hours a week on the job, and time is a zero-sum game," says Dan Hesse, CEO of Terabeam and a former AT&T executive. "Time reading a large legal document is a couple of strategy meetings missed, a customer sales call missed." As one CEO points out, most parents don't know everything their own kids are doing. Personally, I'm not even sure what my dog is doing. She could be on the Internet, searching Google for tips on how to catch those squirrels in the back yard. So, "Of course a CEO of a giant firm can't know all the details," says business author Tom Peters, who has had some ethical controversies of his own. But if a CEO doesn't know all that's going on, how does he or she manage the company? How does a CEO prevent the company from doing an Enron? Two keys I'm hearing: Checks and balances. With only one source of information, Col. Klink was set up to fail. Successful CEOs get information about major decisions from multiple points. One of the most important points is the chief financial officer, who in the Enron fiasco allegedly ran an operation that doomed the company. But CEOs are astounded that any CFO could act alone. Anything a CFO or CEO does would be reviewed by the general counsel. All the executives would have to tell the board. That's the bare minimum. As part of his checks and balances, Farros adds in accountants, lawyers and investment bankers from outside the company. One of the checks on executives can be compromised, maybe even two. In Enron's case, relying on Arthur Andersen as a checkpoint was like counting on a bar owner to make sure you don't drink too much. But when numerous entities are in the loop, getting all of them in cahoots would be darn near impossible. In some instances, a company might need a special checkpoint. At Enron, Chairman Kenneth Lay "knew Skilling was a wild man, and a strong one," Peters says. Lay "should have put a P-A-W-M in place — that is, a Powerful Anti-Wild Man." Now we know what to call Dick Cheney. Culture. Great companies tend to have strong corporate cultures. One reason is that it's a way for the CEO to guide decisions without even knowing about them. "The CEO doesn't have to check on everything all the time if the CEO has taken the time to clearly articulate a code of conduct," Hesse says. If everyone knows how they're expected to behave, they'll generally do it — and, conversely, people who behave that way will want to work at that company. "It seems to me that the tone was quite promiscuous at Enron," says Peters. "And driven by moving hell and high water and then some to prop up the stock price." In the end, there's a difference between knowing about everything inside a company and being responsible for everything that goes on inside a company. "The CEO is the 'buck stops here' job," Farros says. So Enron's Skilling possibly could have been telling Congress the truth. He might be the Col. Klink of business. But it doesn't matter. He was the CEO. Other CEOs say that whatever happened at Enron was his fault. As for Skilling's future, maybe he'll continue to follow Klink and get into TV. If Hollywood producers could make a sitcom about a Nazi prisoner-of-war camp, then they could make one about Enron. ------------------------------------------------- Kevin Maney writes a weekly column about technology. Send e-mail to Kevin at kmaney@usatoday.com.

To: Raymond Duray who wrote (1919)	3/17/2002 6:42:49 PM
From: stockman_scott	Respond to of 3602

The Costs of Auditor Chaos By Rebecca Byrne Staff Reporter TheStreet.com 03/15/2002 The mad dash to change auditors faced by Arthur Andersen's clients in the wake of the accounting firm's indictment could unsettle equity markets and prove costly both in terms of additional fees and lost productivity. "There's going to be a massive scrambling to line up new auditors," noted Bruce Rosen, an auditing partner at accounting firm Richard A. Eisner & Co. "There'll be chaos for a while." Andersen was indicted on an obstruction of justice charge for destroying "literally tons" of documents and purging electronic data related to Enron's bankruptcy, according to the Justice Department. If convicted, the company's executives face $500,000 fines and five-year probation terms. Andersen could also be barred from conducting audits on publicly traded companies, which would have far-reaching implications for its 2,300 clients. "A delay in earnings announcements almost seems inevitable," said Mark Bradshaw, assistant professor of accounting at Harvard Business School. Extra Time The Securities and Exchange Commission has said it will accept unaudited financial statements if companies are unable to meet existing deadlines, and the agency will give affected firms an extra 60 days to deliver fully audited results if necessary. The grace period will address timing constraints that the affected issuers may face and should help minimize disruptions in the capital markets, according to the SEC. Still, some analysts worry that 60 days may not be enough, and that the uncertainty caused by Andersen's collapse could prove to be very unsettling to the market. "We were going to be weak heading into the preannouncement [season] , and the delays may extend that period of weakness," said Peter Canelo, formerly an investment strategist at Morgan Stanley, but now an independent strategist. Double Taxation Aside from the hit to credibility that Andersen's clients now face, they are also likely to encounter numerous costs associated with physically changing accountants. If Andersen is dismissed in the middle of an engagement, clients will be forced to pay fees both to Andersen and the new auditor. "A normal switching of auditors is quite a costly process," said Bradshaw. The exact cost varies depending on the size and complexity of the company, but accountants say the whole process tends to be expensive because it can take the new accountant hundreds of hours simply to learn how the business operates. "Since they don't have the prior years' working papers to start from and often lack institutional knowledge and contacts, a first-time audit will cost much more than subsequent ones," said Jeff Brotman, adjunct professor of accounting at Pennsylvania Law School. Initial audit fees can run as much as 25% to 30% more than recurring audits, although it is possible that a new auditor will waive those fees and consider them as a cost of acquiring the client. The Devil You Knew Even so, there's a reason why most companies engage the services of one accountant for decades at a time. When a firm hires a new auditor, valuable time and resources are spent on simply educating the accountant about the business, which can be a drag on efficiency. "As they get up to speed, they're bothering the people who work there," Bradshaw noted. "I can't imagine the lost productivity consumed by company employees helping out the auditors. It's a messy process." Of course, there is always a silver lining. The collapse of Andersen would reduce the number of major U.S. accounting firms to just four, which would heighten the competition among those that are left. "Thus, the audit fees may not go up by as much as they should," said Brotman. Richard Molé, CPA and partner at Weisberg Molé Krantz & Goldfarb, believes that the death of Andersen could provide a "fresh start" to many of its clients. "A new set of eyes could give some of these companies more perspective, or insight, into how they report," he said. Me, Too Brotman said he wouldn't be surprised to see companies that were not audited by Andersen also switch firms. "If you were unhappy with your auditor but had been afraid of changing because of stigma, the chaos of massive changes all around might be great cover to make your move," he said. In general, analysts expect earnings numbers to be much more credible from now on. Of course, Andersen may yet survive the scandal. The company has said the action taken against it has been "a gross abuse of government power," and that the indictment is riddled with factual and legal errors. But many experts say the damage to the firm's reputation has already been done, and that it is only a matter of time before the 2,300 clients jump ship. "It will be interesting to see how long it takes these companies to be squeezed through the cycle and how long it takes them to come out the other end," said Julia Grant, accounting professor at Weatherhead School of Management.