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CEO: Andersen lost clients
graphic January 28, 2002: 6:02 p.m. ET

Says Enron cost his firm business, but vows auditor will survive the ordeal.
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  • Andersen gets wake-up call -- Jan. 17, 2002
  • Special Report: Enron's Collapse
    NEW YORK (CNN/Money) - Arthur Andersen CEO Joseph Berardino acknowledged Monday the accounting firm lost business because of its association with collapsed energy trading company Enron Corp., but vowed his firm would survive and denied accounting problems were the root of Enron's woes.

    "People who know us well continue to hire us and stand by us. People who don't know us as well are less anxious, frankly, to hire us. Yes, we've lost business," Berardino told a news conference at the company's headquarters in Chicago. "We feel very confident that we can get through this."

    Berardino insisted that it was a failure in Enron's business model, not its accounting practices, that torpedoed the company's stock and sent the energy trading company to seek bankruptcy court protections.

    Andersen CEO Joseph Berardino at a Chicago press conference Monday.
    "Few people realize that two-thirds of Enron's market value was gone before its accounting practices became an issue for the SEC," said Berardino in a prepared speech. "Accounting issues did not cause Enron's stock price to fall -- its failed business model did.

    "Enron's former chairman has acknowledged the company made bad investments, was over-leveraged, and allowed conflicts of interest that caused investors to lose confidence," Berardino continued. "In a trading business that depends on trust, loss of confidence is fatal. And that's what ultimately killed Enron. People wouldn't trade with it."

    Berardino said the Big Five accounting firm, which racked up $52 million in auditing and consulting fees last year from Enron, was reviewing all of its accounting procedures and would seek to determine if the relationship -- and the enormous fees at stake -- were a factor in not exposing the company's troubles.

    "There's a balance between getting to know your client well so you understand the business and getting too close. I don't know if we crossed that line. What I do know (is) we will get to the bottom of what people knew and the judgments they made on the accounting," Berardino said.

    Berardino tried to portray the accounting firm as a victim in the Enron scandal, saying that 85,000 "honest, hard-working people of Andersen" did not work on the Enron case and have been tarnished by it nonetheless.

    Enron fired Andersen as its auditor on Jan. 17, while Andersen said its relationship with Enron ended when the company filed for bankruptcy on Dec. 2. Both firms are under investigation by the U.S. Securities and Exchange Commission and at least eight congressional committees.

    The Justice Department is conducting a criminal probe of Enron. Andersen hired a law firm to conduct interviews with the many Andersen employees involved with Enron, and Berardino said any wrongdoing would be punished.

    Andersen has fired partner David Duncan, who led its Houston office, and said he was responsible for shredding documents related to Enron even after the SEC began investigating in October. Duncan refused to testify at a congressional hearing on the case last week, but has insisted he was following the guidance of other Andersen officials when he supervised the shredding.

    With Enron in bankruptcy, shareholder lawsuits would likely target the company's auditor, Andersen, analysts said. Former Enron employees filed a class action lawsuit on Monday in Houston, naming Andersen among the defendants.

    The Chicago-based accounting firm, which billed $9.3 billion last year and has 85,000 employees worldwide, had to pay millions of dollars in settlements in 2001 related to failed audits of trash hauler Waste Management and appliance-maker Sunbeam Corp., both of which overstated earnings.

    Berardino admitted that Andersen reviewed the off balance sheet partnerships that hid huge amounts of Enron debt, but said the partnerships were created by Enron and its investment bankers. "The problem at the end of the day was those assets were not worth what the company paid for them. It's unclear in my mind, to our mind, when that became knowledgeable to the company and to us," Berardino said.

    Andersen's aim was to find out what its auditors knew about Enron's troubles and when they knew it, and what Andersen employees who destroyed documents thought they were doing, Berardino said. graphic

    -- from wire and staff reports


    Andersen gets wake-up call -- Jan. 17, 2002

    Special Report: Enron's Collapse