Justice Department rejects Arthur Andersen's settlement proposal

Friday, April 26th 2002, 12:00 am

By: News On 6

WASHINGTON (AP) _ The Justice Department has rejected a proposal from accounting firm Arthur Andersen for settlement of a criminal obstruction charge stemming from the shredding of Enron Corp. documents, an Andersen attorney said Friday.

``They rejected our proposal,'' said the attorney, Rusty Hardin. ``So I think all kinds of discussions with them are probably over for now. ... So we just proceed to trial. ... I think we're probably through talking to the government about the case.''

Hardin declined to give any details of Andersen's proposal or the government's reasons for rejecting it.

Andersen, which is scheduled to go on trial May 6 in Houston on the obstruction-of-justice charge, had sent a letter to the Justice Department Wednesday laying out its position in response to the government's request last week.

Justice Department spokesman Mark Corallo on Friday said only that the department issued a response to the accounting firm.

In a related development Thursday, the Senate Judiciary Committee approved an Enron-inspired bill that would create new criminal penalties for securities fraud. The action came a day after the House passed legislation that would tighten oversight of the accounting industry and toughen some corporate rules _ a measure assailed by consumer groups and some Democrats as too weak.

Andersen, one of the Big Five accounting firms, has been struggling for survival as it rapidly loses clients and affiliates following its indictment last month.

Former Federal Reserve Chairman Paul Volcker, who has been overseeing changes at Andersen, said Thursday that in recent weeks, his plan to turn the firm into one that does only auditing has lost support among Andersen partners.

``Loyalties have dissipated, people are looking out for their own welfare,'' Volcker said in an interview on CNBC. ``I'm not sure that critical mass (of support) still exists. If all the other problems evaporated tomorrow, the other problems obviously are not going to evaporate tomorrow.''

Andersen's efforts to sell its tax and consulting businesses, in keeping with Volcker's proposal to make it an audit-only firm, have prompted a bidding war.

Andersen did not return telephone calls Friday seeking comment on a news report that No. 1 accounting firm PricewaterhouseCoopers had offered to double the bid by Deloitte & Touche to acquire Andersen's tax practice. Deloitte signed a memorandum of understanding last week to acquire a significant portion of the tax business and more than 200 of Andersen's 560 tax partners after Andersen rejected a competing offer from Fox Paine & Co.

On April 18, Andersen notified the Justice Department that it was not in a position to make a decision on any criminal settlement.

``We just agreed that we're just not there right now,'' Hardin said at the time. ``We rejected certain proposals by the government and agreed to continue to review other proposals of the government, but we could not complete that review within the time frame the government was demanding.''

Both Hardin and company spokesman Patrick Dorton left open the possibility that negotiations could resume.

The collapse of the secret negotiations occurred after the outlines of a deal had been struck, a person familiar with the case said Thursday.

Among the sticking points was specific language on an admission of guilt in illegally destroying Enron documents. Andersen also had objected to the length of time the Justice Department had proposed for deferring possible prosecution of the accounting firm, arguing that three years was too long, this person said.

The Securities and Exchange Commission is pursuing a civil investigation of Enron and Andersen.

The grand jury indictment against Andersen, which was unsealed March 14, alleges the firm destroyed tons of paper at its offices worldwide and deleted enormous numbers of computer files on its Enron audits.

David Duncan, the former senior Andersen auditor on the Enron account, has pleaded guilty to ordering the shredding of Enron documents and agreed to cooperate with prosecutors. He is scheduled to be sentenced in August.

The government had offered to defer any criminal prosecution of Andersen for up to three years, requiring Andersen as a corporation to cooperate in the investigation of Enron and promise not to violate any laws during that period.

Andersen also has been negotiating separately to settle civil lawsuits brought by Enron shareholders and creditors. Those talks broke off last week.

The firm has been losing clients and workers since its acknowledgment in January that it shredded audit documents and deleted computer files related to Enron's audits after the SEC launched an investigation into the energy-trading company.