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Arizona sues Andersen
April 26, 2001: 9:03 a.m. ET

State alleges accounting firm played role in securities fraud by Baptist group
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NEW YORK (CNNfn) - Arizona state officials and securities regulators have jointly filed a lawsuit against Arthur Andersen LLP, alleging that the auditor willingly participated with a religious foundation in an investment fraud, according to a published report Thursday.

The state is suing the accounting firm over what it contends was Arthur Andersen's involvement in an alleged cover-up of a securities fraud by the Baptist Foundation of Arizona, the Wall Street Journal reported.

The paper, citing an unnamed former Andersen accountant, said the firm ignored warnings from its own auditors that the religious group had inflated the value of its assets and was covering up losses, and issued a clean audit, which the foundation then used to attract new investors.

The lawsuit, which seeks investor restitution of as much as $600 million, alleges Andersen's legal group also ignored anonymous phone calls in mid-1997 warning that the foundation's investment operation was a "Ponzi" scheme, in which money paid in by later investors was used to pay inflated returns to the original investors, the Journal said.

Andersen, in the report, maintains it acted appropriately and was cooperating with the criminal investigation into the alleged fraud. "Any time senior management conspires to defraud investors, this kind of complicated fraud will be very difficult to detect," the paper quoted Ed Novak, an outside attorney for Arthur Andersen. graphic