Andersen probably should not have made the guy in charge of the Keating S&L audit debacle an important exec in their co ! <gg>
I believe Andersen has retracted its $217 mill offer since the date of this article.
Andersen to Settle Arizona Claims for $217 Million
By David S. Hilzenrath
Washington Post Staff Writer
Saturday, March 2, 2002; Page E01
Auditing firm Arthur Andersen agreed yesterday to pay $217 million to settle claims that it concealed fraud at the Baptist Foundation of Arizona, which collapsed into bankruptcy in 1999 and took with it the savings of many elderly investors.
In a case that bore parallels to the recent fall of Enron Corp., Andersen was accused of ignoring glaring warning signs during annual audits and lending its credibility to financial statements that misled investors.
Andersen said it settled the case without admitting or denying wrongdoing "to enable our firm to move forward without the uncertainty and distraction of costly and protracted litigation in Arizona."
Andersen said the accord was "fair and reasonable" and recognized "the responsibility of many parties in failing to stop this tragedy."
The settlement came three days before one of the Baptist Foundation lawsuits was scheduled to go to trial, and the shadow of Enron loomed over the negotiations. As it scrambles to reach a separate peace with shareholders, employees and creditors of Enron, Andersen has been arguing privately that a long legal fight could drive it out of business, crippling its ability to pay anyone damages.
The Baptist Foundation, a nonprofit organization, offered high interest rates on retirement accounts and put its money in real estate, much like a savings and loan institution. It said it helped fund Baptist ministries, inspiring many investors to trust it with all or most of their nest eggs. But Arizona regulators allege it was operating a Ponzi scheme -- using money from new investors to make payments to old investors.
Five former BFA officials have been indicted on charges of fraud, racketeering and theft, and three others have pleaded guilty to felonies.
Andersen, which vouched for the BFA's financial reports from 1984 through 1997, faced claims by investors, state agencies and the trustee of the bankrupt foundation.
Regulators alleged that a former BFA employee gave an Andersen auditor a detailed road map to the fraud but that Andersen failed to follow it. Andersen was accused of doctoring audit records and disregarding other warning signs, including newspaper coverage of alleged irregularities.
Accounting industry executives have long argued that serving as advisers to the companies they audit makes them better auditors, giving them deeper insights into the client's business. Andersen was hired to advise the BFA on its vulnerability to IRS scrutiny, and an Andersen tax specialist spotted potential trouble, which she thought could affect Andersen's audit opinion. But an Andersen partner allegedly told her to delete her written warning.
Under the settlement, two of the top accountants on Andersen's audits of the BFA, Jay Steven Ozer and Ann M. McGrath, agreed to give up their Arizona accounting licenses. They did so with no finding or admission of wrongdoing and are free to seek reinstatement.
Ozer audited Charles Keating's Lincoln Savings and Loan, which became a symbol of the nation's savings and loan crisis when it failed in 1989 at an eventual cost to taxpayers of $2.9 billion.
Andersen agreed to reimburse the Arizona State Board of Accountancy $640,000 for the cost of its investigation. The settlement calls for the board to appoint a panel to visit Andersen's Phoenix office twice a year over the next two years, review its audit work and recommend improvements.
When the BFA cratered, it had an estimated $570 million of investor funds. From the liquidation of BFA assets, investors have so far recovered $49 million.
After legal fees, an estimated 11,000 BFA investors will share $185 million of the $217 million Andersen settlement, distribution of which is expected to begin late this year, a spokeswoman for the state attorney general said. In years to come, as additional BFA assets are sold, investors will recover up to 83 percent of their money, the attorney general's office said.
The $217 million payment will come from a Bermuda-based insurance company, Arizona Attorney General Janet Napolitano said in an interview. That company is owned by Andersen and its international affiliates.
"I don't think it's nearly enough," said investor Harry Jay Freeman, who called Andersen's conduct "shameless and obscene." Freeman, a steamfitter, estimates the BFA's collapse cost him almost $180,000, including lost interest.
Andersen "shouldn't be allowed to do business," said Kenneth Balfour, 67, who lost the bulk of his retirement nest egg and now does handyman work. "I may be a little vengeful, but I think that they hurt a lot of people."
Andersen has spent about $50 million defending itself in the BFA matter, a source involved in the case said.
Andersen has offered Enron claimants $750 million, saying that is the most it can afford without going out of business, lawyers said. Yesterday, the big drug manufacturer Merck announced that it was dropping Andersen, which has audited its books since 1971. |
