Andersen to pay $217 million
Accounting firm to resolve Baptist Foundation litigation; SEC pushes Enron settlement.
NEW YORK (CNN/Money) - Accounting firm Arthur Andersen, which is currently trying to resolve litigation over its role in the collapse of Enron Corp., agreed Friday to pay $217 million and settle all pending litigation related to its audits of the Baptist Foundation of Arizona.
The agreement settles all civil and administrative cases against Andersen involving the Baptist Foundation. Andersen partner Jay Ozer and audit engagement partner Ann McGrath, both of whom had primary responsibility over Andersen's audits of the Foundation, will give up their CPA licenses. Five foundation officials are awaiting trial, while three have pled guilty.
The $217 million amount is the largest ever paid by a Big Five accounting firm to resolve litigation not associated with the savings and loan crisis and twice the settlement amount Andersen has ever paid, the BFA Liquidation Trust said Friday. The trust is charged with liquidating the assets of the foundation.
"We made a business decision to settle this matter, without admitting or denying any wrongdoing, to enable our firm to move forward without the uncertainty and distraction of costly and protracted litigation in Arizona," Andersen said in a statement Friday.
The malpractice case, originally filed in August 2000, claimed that the Chicago-based accounting firm dismissed warnings from former foundation employees that the foundation was defrauding investors. The foundation had allegedly been running a ponzi scheme -- using funds from one group of investors to pay off another -- which led to its collapse in 1999 and nearly $600 million in investor losses.
"It's a tremendous victory for the people that invested in the Baptist Foundation and this wouldn't have occurred without the significant help of class action lawyers and the State of Arizona," said attorney Richard Bell, of Cohen & Malad, who represented one of the lead plaintiffs in the class action against Andersen and the BFA.
Andersen did not admit any wrongdoing with its settlement. The accounting firm must deposit the $217 million in an account controlled by the BFA Liquidation Trust by April 15.
The BFA case is remarkably similar to the current situation with Enron, Malad said. The accounting firm did not conduct proper audits of BFA's financial statements and allegedly ignored warnings from a whistleblower that the BFA was defrauding investors and using its schemes to hide mountains of debt.
The malpractice case against Andersen had been set to go to trial on March 4.
An Enron settlement?
Separately, the Securities and Exchange Commission -- hoping to help Enron casualties rather than the U.S. Treasury get some cash in hand -- is pushing for a blanket settlement between Arthur Andersen and the shareholders, creditors and employees suing the accountant.
According to a source familiar with the situation, the SEC isn't facilitating or acting as a go-between for Andersen and the claimants. But the agency is letting the involved parties know where it stands in hopes of influencing the parties to come to agreement.
Currently, Andersen is offering $750 million to settle civil claims against it due to the accounting firm's role in Enron's collapse, a plaintiff's attorney told CNNfn. But attorneys leading the case against Andersen have rejected the offer, calling it inadequate.
A universal settlement could lead the SEC to levy a smaller fine against Andersen for its role in Enron's collapse. "If [the SEC] knows that Andersen will atone for its sins and make good on things, this may mitigate what they may ultimately do to the firm," the source said.
However, the $750 million Andersen offer is low, the source said. "This far exceeds what the SEC has done to someone but [Enron's bankruptcy] is a huge liability and [$750 million] seems like nothing," the person said.
The agency prefers a global settlement, in which the money would go directly to those hurt by Enron's bankruptcy, rather than a fine which would go to the U.S. Treasury.
"The SEC's preference would be to get the money back to the people," the source said.
There is little the SEC can do to force private plaintiffs to accept any settlement. Andersen has not begun settlement negotiations with the SEC, the source said.
Andersen's proposed settlement includes three groups suing the accounting firm: Enron shareholders, Enron unsecured creditors, and current and former Enron employees. About $250 million of the proposed settlement would come from the accountant's insurance coverage and the remaining $500 million would come from Andersen's future earnings over five years.
Both Andersen and the SEC declined comment on the proposed Enron settlement.