Arthur Andersen settled 12 probes similar to Enron’s over last 20 years

  • Thursday, January 17, 2002 9:00pm
  • Business

Associated Press

CHICAGO — Accounting firm Arthur Andersen has settled at least a dozen cases over the last 20 years to end government or stockholder investigations into allegations its auditors missed, ignored or hid clients’ financial problems from unwitting investors.

In two of the most recent and serious cases, the Securities and Exchange Commission alleged Andersen inflated earnings on behalf of trash hauler Waste Management Inc. and appliance maker Sunbeam Corp. And in many of the earlier cases, state officials and shareholders’ lawyers made accusations that parallel the alleged irregularities at the heart of Enron Corp.’s collapse.

"In all but the magnitude of dollars, there are striking similarities between Enron and what happened here — the compromising relationships with auditors, destruction of documents and so on," said Connecticut Attorney General Richard Blumenthal, who investigated Andersen’s role in the collapse of Colonial Realty Co. in the early 1990s.

Securities lawyers, seasoned accountants and other experts caution that Arthur Andersen’s past blemishes may be no worse than other Big Five accounting houses, all of which face attacks from bitter investors when a big company crumbles.

But they say Andersen’s role in Enron’s stunning fall and its past problems highlight long-simmering concerns about potential conflicts of interest when companies have too close a relationship with the auditing firms that the investing public relies on for objective, independent reviews.

For instance:

  • Andersen paid $90 million to bilked investors and $2.5 million to the state of Connecticut to settle claims the company knowingly signed off on overly rosy forecasts for Colonial Realty’s real estate ventures in Hartford. At the same time, state officials said, Andersen auditors took cash, trips and other gifts from Colonial executives. Investors lost more than $300 million on Colonial.

  • Andersen paid the state of Ohio $5.5 million to cover taxpayers’ losses on insured deposits at the failed Home State Savings Bank rather than challenge the government’s claim Andersen was negligent in reviewing the thrift’s books. Home State’s failure spurred a statewide bank crisis.

  • Andersen agreed to at least $24 million in settlements over allegations it misrepresented the financial health of Arizona-based American Continental Corp. and its subsidiaries, which included Charles Keating’s failed Lincoln Savings &Loan.

  • Andersen is under investigation by Arizona officials in another case, in which the state says the firm’s auditors ignored repeated, and easily confirmed, information from insiders that the Baptist Foundation of Arizona was defrauding its customers. After years of clean Andersen audits, the company was exposed as a multimillion-dollar Ponzi scheme.

    In case after case, Andersen’s representatives said the settlements were not an admission of fault by the company, but rather an economic decision to avoid years of costly legal battles. An Andersen spokesman did not return telephone calls Thursday seeking additional comment about the past cases.

    Experts agreed that big firms prefer to settle such cases, guilty or not, to avoid the potential cost and embarrassment of a public trial. The settlements make it difficult to quantify firms’ past problems because there are not usually any findings of fact.

    "What happens is the accountants have deep pockets and they’re the only ones left standing, so they almost always get sued," said Bob Schweis, managing director of Willamette Management Associates in Chicago and an expert on auditor independence. "These things erupt, the media is in a frenzy, and if the auditor can’t put the fire out, they settle whether there’s evidence of wrongdoing or not."

    Copyright ©2002 Associated Press. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.

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