It doesn’t look good

  • Wednesday, January 16, 2002 9:00pm
  • Business

Associated Press

CHICAGO — Arthur Andersen LLP accelerated its damage-control efforts Wednesday, taking out full-page ads in national newspapers to try to limit blame in the Enron debacle to its Houston office and promising an overhaul of its practices.

But as Andersen’s lead auditor in the case met with congressional investigators in Washington, D.C., questions remained about whether involvement in the document-shredding scandal extended to executives at Chicago headquarters.

"It’s one of two things," said Ramy Elitzur, professor of accounting and head of the MBA program at the University of Toronto. "They had a central review and they’re trying to shift the blame, or they didn’t have a central review and their procedure is lacking. Either way, it doesn’t look good for them."

And there were also these developments:

  • In Washington, White House press secretary Ari Fleischer acknowledged that Larry Lindsey, President Bush’s economic adviser and a former Enron board member, studied the possible national economic impact as the Texas-based energy firm struggled for its financial life. But officials said the government took no action on Enron’s behalf. Lindsey received $50,000 from the company while on the board in 2000.

  • In Tulsa, an energy company sued Arthur Andersen in what experts say is likely the first of many lawsuits accusing it of complicity in Enron’s spectacular collapse. Lawyers for Samson Investment Co. filed a suit against Chicago-based Andersen on Tuesday, claiming it "recklessly disregarded evidence of questionable financial transactions between Enron and its insiders."

  • In Houston, Enron Corp. offered its remaining employees bargain basement prices on office plants because it can’t afford to pay for their care.

    The series of startling recent disclosures involving Andersen’s role already has badly wounded the accounting giant’s stellar reputation, raising widespread speculation that it may not survive the controversy as an independent company.

    Experts say the key to the company’s immediate fate may be what investigators discover in probing what top managers knew and when they knew it.

    In a full-page advertisement published Wednesday in leading newspapers, Andersen CEO Joseph Berardino touted actions taken by the company the previous day: Andersen’s lead partner on the Enron account, David Duncan, was targeted for dismissal, three other partners who worked on the assignment were put on leave, new leadership was put in charge of the Houston office and four partners were stripped of their management responsibilities.

    "In the near future, Andersen will announce comprehensive changes in our practices and policies that we believe will reaffirm confidence in the independence and quality of our work," the ad said.

    Duncan’s lawyers said he was following Andersen’s document handling policies and did nothing wrong; they said he is cooperating with all investigations.

    The efforts at damage control appeared designed to isolate the problems to the Houston office, which handled the audit of the collapsed energy-trading company and has about 1,400 of Andersen’s 85,000 employees.

    But Berardino has left open the possibility that headquarters executives might be implicated, saying Tuesday that "we’re not quite sure yet" whether wrongdoing reached higher into the accounting firm than the auditors being disciplined.

    Accounting industry experts differ on whether Andersen’s Houston office would have told headquarters of key decisions in the Enron case as long ago as August, when an Enron finance executive wrote CEO Kenneth Lay of a concern the company could "implode in a wave of accounting scandals." That was two months before Enron confessed its profits had been overstated and federal investigators became involved.

    Particularly at issue are special partnerships formed by Enron that enabled it to add several hundred million dollars from off-the-books transactions to publicly stated earnings, and at the same time hide big debts.

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

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