Andersen seeks Enron deal|
Accounting firm to make offer to Enron creditors committee in effort to settle litigation.
NEW YORK (CNN/Money) - Arthur Andersen this week will offer a presentation to Enron Corp.'s creditors, telling them how much the accounting firm can afford to pay to settle any litigation from the collapse of the energy trader, a plaintiff's lawyer told CNN/Money Thursday.|
Andersen plans to open its books to creditors and will present to them the amount the Chicago-based firm can pony up without going out of business, said Vincent Cappucci, of law firm Entwistle & Cappucci, which represents the New York City and Florida pension funds in a suit against Andersen.
Andersen, which acted as Enron's auditor before it was fired, may have to pay up to 40 percent of a $60 billion damage bill, in addition to claims from unsecured creditors, Cappucci said.
The Chicago-based accounting firm, the subject of shareholder and investor litigation, will make the offer to Enron's creditors committee this week and follow up with a presentation to attorneys for the University of California and then to other significant claimants.
"If we went to trial against Andersen they wouldn't be able to pay it," Cappucci said. "They want to open their books and say this is the most amount of money they can give and continue to do business."
Settling the claims against Andersen may stop the departure of its clients during the upcoming proxy season. SunTrust Banks Inc. and Hard Rock Hotel and Casino in Las Vegas have already dropped Andersen as its auditor.
A spokesman for Andersen reiterated the firm's statement given on Wednesday. "Reaching out to the groups affected in this case is consistent with our commitment to address the issues raised by Enron's collapse in a straightforward and constructive manner," Andersen said. "We think it is in the best interests of all parties to deal expeditiously and responsibly with what has occurred."
Number still in flux
No information was available on the amount Andersen is planning to offer.
But USA Today, citing unnamed legal sources familiar with the talks, has reported that Andersen's attorneys floated an offer of up $260 million in corporate insurance, plus an undisclosed amount of company assets to settle the claims against the Chicago-based accountant.
The Wall Street Journal followed that account with its own report Thursday that Andersen extended an offer of between $700 million and $800 million. But it said that plaintiffs' attorneys had rejected the offer at a meeting Tuesday, noting the proposal amounted to less than 2 percent of Enron shareholders' total losses.
Other plaintiffs' attorneys told the Wall Street Journal that they believe it would be foolish to accept an offer so early into the government's investigation of the Enron collapse, before the extent of Andersen's culpability is established.
The New York Times reported Thursday that two big insurers, Royal Insurance Co. of America and the St. Paul Mercury Insurance Co., are balking at honoring policies they wrote covering Enron's directors and officers against the cost of lawsuits.
The policies, known as directors' and officers' liability insurance, protect the company and its top officials from suits and legal costs involved in shareholder suits. The company has reported it has $350 million in directors' and officers' coverage, according to the Times report.
The Times said that the firms argue in filings in the U.S. Bankruptcy Court that they had relied on what turned out to be "material misrepresentations" by Enron when they issued the policies. The paper said that if the two are successful in walking away from their Enron policies that nine other insurers who wrote such policies would follow their lead.
The Times report also said that if that insurers are allowed to walk away from their Enron policies, it will make settlement of the shareholder suits more difficult and could lead the plaintiffs' attorneys to seek more money from Andersen and other financially healthy companies that may be implicated in Enron's collapse.
The Financial Times reported Thursday that a senior executive from AIG, the world's largest insurer, warned that following the Enron scandal the insurance industry was facing a disastrous run of claims over policies that cover shareholder lawsuit liabilities.
The London-based paper reported that Thomas Tizzio, senior vice-chairman at AIG, said increased attention to accounting practices and a rash of high-profile bankruptcy cases, such as at Enron as well as retailer Kmart Corp. could prompt a rash of such shareholder suits. He said insurers needed to understand the companies they covered and the risks to which they were committing themselves.
The Financial Times said Tizzio implied that insurers had not charged nearly enough for premiums for directors and officers policies.
"The focus in 2002 will be on D&O in corporate America," he is quoted as saying. "This year could ultimately see a catastrophic loss in that sector."