NEW YORK (CNN/Money) -
Arthur Andersen LLP, which is losing clients each day, can't wait until the start of the May trial that will determine whether the accounting firm obstructed justice, former Federal Reserve Chairman Paul Volcker told CNN's Lou Dobbs Moneyline Monday.
Volcker said Andersen needs to know soon if it will receive any relief from the government's indictment. "If the answers aren't forthcoming, events will take their course and then the prospects are not good," he said.
Volcker outlined a proposal for saving the firm Friday which received Andersen's support. However, Andersen's management is expected to provide partners with further guidance as to future options at this point, a source within the firm told CNNfn. But no public announcement is expected Tuesday, another source familiar with the situation said.
Volcker recommended Friday that a seven-man board take control of Andersen, make changes in its operating leadership and realign senior management if necessary. He also proposed that the Department of Justice consider modifying its approach and appealed to the Securities and Exchange Commission to conclude its pending investigation.
The Department of Justice has not responded to Volcker's call for reform at Andersen.
Chicago-based Andersen has been reeling since it was indicted March 14 for destroying Enron documents. The trial on the one-count criminal charge is to begin May 6.
Andersen, once the most powerful accounting firm in the world, has lost about 50 to 55 public client this year, Art Bowman of Bowman's Accounting Report said. Pennzoil-Quaker State Co. and EOTT Energy became the latest to drop Andersen, and both said Monday they now will use PricewaterhouseCoopers.
"[Andersen] is obviously losing clients and is under great pressure," Volcker said.
A Department of Justice spokesman declined to comment on whether there was any room to settle with Andersen. "A trial date has been set by the judge in Houston," the spokesman said. "We have that in our sights; that's our primary goal right now."
Andersen also is seeing its proposed merger with KPMG International stagger as various partnerships around the world break ranks and join rivals. Andersen Australia's operations Monday abandoned negotiations with KPMG due to a conflict surrounding the collapse of HIH Insurance Ltd. Andersen's Australia unit is now in talks with rival Ernst & Young, which also is in negotiations with various Andersen units around the world.
Last week, two other Andersen partnerships -- New Zealand and Russia -- also signed on with Ernst while Andersen's member firm in Hong Kong agreed to join rival PricewaterhouseCoopers.
While the rest of the Big 5 -- which include PwC, Ernst, KPMG and Deloitte & Touche -- have voiced their support of Andersen, Volcker discounted such endorsements.
"They're out there every day trying to attract clients and attract partners of Andersen to join them," Volcker said.
Volcker, who would head the 7-member board to take control of Andersen, said if Andersen collapses regulators will lose a chance to reform the auditing system. The "new Andersen," which would focus mostly on audits, would better achieve the goals of the DOJ alive than dead, he said.
But time is running out for the 89-year-old Andersen and the firm has yet to hear from the DOJ. "I think we've got to do something this week," he said.
Duncan to flip?
David Duncan, the former Andersen partner who led the embattled accounting firm's auditing of bankrupt energy trader Enron Corp., met with federal prosecutors last week to discuss cooperating with the government's criminal case against Andersen, according to a published report.
The Wall Street Journal, quoting unnamed lawyers familiar with the case, reported Monday that Duncan's cooperation could be further bad news for the firm, which was hit with a federal criminal indictment for the destruction of Enron documents earlier this month. The firm has admitted to the shredding of documents, but has blamed Duncan, who was dismissed by Andersen in January.
"The whole thing turns on his next move, and we don't know what he's going to do, or what Justice will do," the paper quotes one of the lawyers close to the case.
Robert Giuffra, Duncan's attorney, declined to comment.
Click here to check Enron fallout stocks
In January, Andersen said it fired Duncan for directing staff to destroy Enron documents as an investigation by the Securities and Exchange Commission began. However, Duncan has testified that Andersen's Houston office began destroying Enron audit documents after receiving an e-mail Oct. 12 from Nancy Temple, a staff attorney at Andersen, in which she reminded the Houston office about the firm's document retention policy.
"It would be helpful to make sure that we have complied with the policy," Temple said in the message.
Duncan in January declined to testify before a Congressional hearing, invoking his Fifth Amendment right against self-incrimination.
Former Enron Treasurer Ben Glisan is also seeking a similar deal, press reports said.
The Justice Department declined to comment.