Andersen splitting off much of tax practice as U.S. breakup begins

By Kristen Hays

Associated Press

HOUSTON – A group of insurers among the plaintiffs in the civil lawsuit over Enron Corp.’s collapse is seeking a temporary injunction barring Arthur Andersen LLP from selling assets in its scramble for survival.

An order issued late Thursday by U.S. District Judge Melinda Harmon set a Monday hearing on the request. It came hours after Andersen announced a tentative agreement with Deloitte &Touche for a “significant” number of its U.S. tax partners and professionals to join the rival firm, as Andersen pares down operations to raise revenue and trying to stay alive.

Galveston-based American National Insurance Co. and several other insurers asked for an injunction to enjoin Andersen from selling assets or transferring them to foreign subsidiaries or affiliates.

The motion, filed last month, also seeks to bar Andersen from releasing partners and employees who quit the firm from noncompete agreements. Such agreements prohibit former workers from taking clients with them if they join other auditing firms.

“We’re one of the claimants who have lost significant dollars in securities,” said Andrew Mytelka, American General’s attorney. “There won’t be anything left to collect from.’ “

Andersen spokesman Patrick Dorton dismissed the claim.

“We do not consider this request as having any merit whatsoever,” he said.

Terms of Thursday’s memorandum of understanding between Deloitte and Andersen were not announced, and both firms said details remain to be worked out. But splitting off much of its tax unit – which employs about a quarter of its U.S. work force of 28,000 and brought in $1.27 billion in revenue last year – shows that the firm will be much smaller if it manages to survive an indictment and other continuing fallout from the Enron scandal.

Andersen’s accounting empire is already fast breaking up abroad as a result of the Enron debacle.

Separately, The Wall Street Journal reported Friday that competitor KPMG had signed an agreement with Andersen to acquire 400 staffers and 40 partners from Andersen offices in Seattle; Portland, Ore.; Salt Lake City; Boise, Idaho; San Francisco; and Los Angeles.

An Andersen source familiar with the matter confirmed that a memorandum of understanding had been signed with KPMG but did not give details. A spokesman would not confirm the memo, and a KPMG spokesman declined to comment.

Joining American General in the motion to halt the asset sales, were American National Investment Accounts Inc.; Standard Life and Accident Insurance Co.; farm Family Life Insurance Co.; and National Western Life Insurance Co.

The companies’ motion said continued defections of Andersen partners and units “may constitute a rape of Andersen’s goodwill and client base.”

The exodus of clients continued Friday. Five more companies – Fleetwood Enterprises Inc., Genuity Inc., Houston Exploration Co., KeySpan Corp. and Peregrine Systems Inc. – announced they had replaced Andersen as their auditor. Two each went to Deloitte &Touche and Ernst &Young, another to KPMG.

The firm has now lost 132 U.S. public audit clients this year – more than two-thirds since it was indicted March 14 by a federal grand jury on a charge of obstruction of justice for allegedly destroying Enron documents.

The obstruction of justice trial is set to start May 6 unless the Justice Department backs off and reaches a pretrial agreement with Andersen instead. Justice Department prosecutors were meeting Friday with top Andersen lawyers.

Andersen has 1,700 U.S. partners, about a third of them in its tax services. It was not clear how many would go to Deloitte. Andersen said it anticipates a closing date of as soon as April 30.

Industry analyst Arthur Bowman said Andersen desperately needs cash from the Deloitte deal and others to stay in business and endure the crush of lawsuits by Enron shareholders and others.

Business Writer Dave Carpenter in Chicago contributed to this report.