HOUSTON (AP) - Time is running out for Arthur Andersen LLP to settle criminal and civil cases as a May 6 federal trial on obstruction charges looms in Houston, high-profile clients bolt and more partners consider joining other auditing firms.
A breakdown in negotiations with federal prosecutors to settle the criminal case this week has increased uncertainty as to whether the Chicago-based firm will keep fighting or dissolve.
When asked about the prospects of bankruptcy, Andersen spokesman Patrick Dorton reiterated Friday: "We have no intention to pursue that course."
But many observers see it as an increasing likelihood.
"It's like a patient that is bleeding and a new artery bursts," Arthur Bowman, editor of the Atlanta-based Bowman's Accounting report, said Friday. "Eventually the bleeding just can't be stopped."
In January, Andersen acknowledged that its Houston offices shredded audit documents and deleted computer files related to energy giant Enron Corp.'s audits after the U.S. Securities and Exchange Commission started looking into Enron's murky accounting last October.
Andersen is burdened by shareholder lawsuits, a federal indictment for obstruction of justice, a loss of clients that forced thousands of layoffs and the defection of partners from about two dozen countries whose operations were part of Andersen Worldwide, the global umbrella that oversees U.S. arm Arthur Andersen. Rivals also have moved to acquire its tax practice and its auditing operations in at least nine U.S. offices.
The firm had appeared close to settlements with the Department of Justice and the SEC as talks continued to settle claims against the firm in the shareholder lawsuits filed in Houston.
But the abrupt end to negotiations regarding the obstruction charge on Thursday doesn't bode well for Andersen's hopes of survival, even though the firm left open the chance that talks could resume.
"The longer this goes on, the more clients they're losing," said Randolph Beatty, dean of the Leventhal School of Accounting at the University of Southern California-Marshall. "And if there isn't a settlement soon, there may be no clients to talk about. Almost surely people at Andersen recognize that time is of the essence."
Bowman doubted Andersen would give up on settling the obstruction case and turn its attention to the May 6 trial. A felony conviction would prohibit the firm from auditing publicly traded companies.
"Even if they think they can win, (the Department of) Justice is going to bring out all the dirt that this firm doesn't want exposed to the public," he said.
Robert Mintz, a former federal prosecutor and an expert on white-collar crime, said Friday that the government also is better off settling.
He said the government's strategy has been to pressure Andersen into a plea deal that included full cooperation from the firm's partners and employees in prosecutors' pursuit of Enron.
"Andersen from the outset was viewed by the government as a key stepping stone to building a case against Enron," Mintz said Friday. "It's not a disaster for the government if they have to play this out in front of a jury, but that doesn't play into the government's strategy here."
Andersen's attorney, Rusty Hardin, didn't return a call seeking comment.
The hemorrhaging of Andersen's clients continued Friday.
Scientific-Atlanta Inc., one of the largest makers of cable TV boxes, was among the latest publicly traded companies to bolt. At least 248 of the approximately 2,300 public companies that began the year with Andersen as their auditor have now replaced it, according to Auditor-Trak, a service of Atlanta-based Strafford Publications Inc.
Andersen also reportedly had about 32,000 private, mostly smaller companies as clients last year. It's not known how many have defected.
Meanwhile, The Wall Street Journal reported Friday that Andersen had agreed to sell a portion of its tax business to Deloitte & Touche LLP, ending a two-week battle for the business and passing over an offer from the leveraged-buyout firm Fox & Paine.
Dorton, the Andersen spokesman, did not immediately comment on the deal.
Sales of some practices can raise cash to help Andersen stay afloat, settle claims and emerge as a smaller, audit-only firm as envisioned by Paul Volcker, former U.S. Federal Reserve chairman and head of a special oversight board named by Andersen in February.
But eventually, Beatty said, the client loss will overcome those gains if efforts to settle criminal and civil claims keep failing to produce agreements.
