January 13, 2002

A Tattered Andersen Fights for Its Future

By ALEX BERENSON with JONATHAN D. GLATER

Is time running out for Arthur Andersen & Company?

Three months ago, financial experts asked the same question about the
Enron
Corporation (news/quote), the giant energy trading company that was
Andersen's second-largest client in 2000. Beset by questions about self-
dealing by its top executives and the accuracy of its financial
statements,
Enron rapidly collapsed, costing shareholders tens of billions of
dollars
and leaving thousands of its employees out of work.

Besides Enron itself, no company has been more seriously wounded by its
collapse than Andersen, one of the world's largest accounting firms.
With
more than $9 billion in sales last year and 85,000 employees in 84
countries, Andersen is one of the Big Five that audit the financial
statements of most publicly traded American companies.

After months of damaging revelations about its relationship with Enron,
capped by the acknowledgment on Thursday that it had destroyed a large
number of Enron documents, Andersen is facing Congressional
investigations,
a federal criminal inquiry and lawsuits from shareholders that could
cost
it billions of dollars.

Perhaps even more seriously for a firm that lives and dies by its
reputation, Andersen's name is in tatters. The Enron crisis is only the
latest blow to a firm that has suffered repeated allegations of
impropriety
over the last five years. Last year, it paid a $7 million fine levied by
the Securities and Exchange Commission, the largest ever assessed
against
an accounting firm, for allowing fraud at Waste Management (news/quote).

"Things look very bleak for Andersen," said J. Edward Ketz, associate
professor and director of the M.B.A. program at Pennsylvania State
University."There's a chance that they go under on this one."

Andersen did not respond to questions about its future for this article.

To save itself, Andersen is considering a merger with one of the other
Big
Five - Ernst & Young, KPMG Peat Marwick, Deloitte Touche Tohmatsu and
PricewaterhouseCoopers - according to former Andersen partners and other
experts on the accounting industry, which has indeed been consolidating.
There's just one problem: The other firms may not want to take on
Andersen's problems.

KPMG declined to confirm or deny whether it was in merger talks with
Andersen. The other firms did not return calls seeking comment.

Even so, the rest of the accounting industry will not be able to escape
the
fallout from this crisis, critics of the industry say. Over the last
several years, independent accounting experts have attacked the Big Five
as
being too close to their large corporate clients. The firms face an
inherent conflict of interest because most of their profits come from
lucrative consulting services, not auditing, the critics say. As a
result,
they are reluctant to force clients to change questionable accounting
practices for fear of losing consulting business.

"The problems that exist here are endemic to the profession as a whole,"
Mr. Ketz said."What's happening to Andersen might happen to other firms
later."

Arthur Levitt, the former S.E.C. chairman, said Andersen's problems
would
force the commission and Congress to"think about the way standards are
set, accountants are paid and how the industry is overseen."

He added,"I think all of that is up for grabs - and should be."

As the rest of the industry struggles with those questions, Andersen
will
focus on controlling the damage from revelations about its behavior in
the
Enron case and surviving the crisis of confidence that threatens to
swamp
it.

The most serious question about Andersen's behavior, so far, concerns
the
admission it made on Thursday that it had destroyed Enron documents,
which
included both paper and electronic records. The elimination began in
September and continued through November, Andersen said.

The firm has also said that it is not sure how many documents were
destroyed. It did not disclose who had ordered the destruction, who knew
it
was happening or whether the destruction had continued after the S.E.C.
subpoenaed Andersen for its Enron records.

That acknowledgment came less than a month after Joseph F. Berardino,
Andersen's chief executive, told Congress that his firm had made an
"error
in judgment," allowing Enron to use a partnership run by its former
chief
financial officer to move debt off its balance sheet. The disclosure
that
Enron's debts were far higher than Enron had disclosed was a crucial
factor
that led investors and Enron's trading partners to refuse to lend to it
or
do business with it.

Mr. Berardino also said in his testimony that Enron had misled Andersen
by
withholding important information about other partnerships Enron had
created to move debt off its balance sheet and overstate its profits.
But
that assertion has been undercut by the fact that several top Enron
financial executives, including Richard A. Causey, the chief accounting
officer, worked for Andersen before they joined Enron, raising the
question
of whether Enron and Andersen were improperly close.

Another potential problem Andersen faces concerns Enron's relationship
with
other energy-trading companies, including Calpine (news/quote), Dynegy
(news/quote) and Mirant (news/quote), which Andersen also audits. If the
way Enron accounted for its trades is found to be inaccurate, Andersen
will
confront additional scrutiny about why it did not inform Enron and its
trading partners that their positions had been booked improperly.

In the wake of the revelations, both the House and Senate have announced
investigations. The Senate's Permanent Subcommittee on Investigations
has
subpoenaed Andersen officials.

The scrutiny that Andersen faces from Congress comes in sharp contrast
to
the influence it and other big accounting firms have recently wielded
there. Two years ago, Andersen vehemently opposed a rule proposed by Mr.
Levitt and the S.E.C. that would have banned firms from offering
consulting
services to companies they audited. Andersen, KPMG and Deloitte lobbied
Congress to prevent the S.E.C. from imposing the rule, and Mr. Levitt
backed down, agreeing in November 2000 to a compromise that banned only
a
fraction of consulting work.

To buttress its influence, Andersen has been a big contributor to both
Republicans and Democrats in Congress. Since 2000, its political action
committee has donated $630,000 to Republicans and $360,000 to Democrats,
according to records from the Federal Election Commission. Among the
biggest individual recipients of its largess has been Representative
Billy
Tauzin, Republican of Louisiana and chairman of the House Energy and
Commerce Committee, who received $10,000 last year alone, the records
show.

Now, with investors and former employees looking for answers in the
mystery
of Enron's collapse, Congress may investigate Andersen twice as
thoroughly
to try to prove that the firm's donations have not influenced it.
Andersen's admission that it destroyed documents will not help its
cause.
On Thursday, Mr. Tauzin said Andersen should be prosecuted if it were
found
to have destroyed the documents intentionally.

Even if it can escape legal liability, Andersen faces a public relations
disaster. Auditors serve a crucial role in modern financial markets,
ensuring that the statements companies issue are properly prepared and
accurate. Although they are paid by their corporate clients, they are
accountable to both the S.E.C. and the public.

Investors generally have not cared which accounting firm is used by a
publicly traded company to audit its accounts, as long as the firm is a
member of the Big Five, said Jack Ciesielski, publisher of the Analyst's
Accounting Observer. But if Andersen is seen to have abused the trust of
investors or develops a reputation as unethical, clients may shy away
from
hiring it.

In a sign of how seriously it takes its public relations problem,
Andersen
is lining up clients to testify to its integrity."They've been our
auditors for years, and from our vantage point, we think they do a
terrific
job for us," said Joseph Ryan, general counsel for Marriott
International
(news/quote), the hotel chain."I'm sure they'll work through this."
(Mr.
Ryan said his son worked for Andersen, although not as an auditor.)

Still, the firm acknowledges that some clients have expressed concerns
about its relationship with Enron. Privately, some employees are
blunter,
saying the revelations are having a serious effect on Andersen's ability
to
compete for business. In addition, the firm is rescinding some job
offers,
according to one person whose offer was taken back last month.

As it struggles to survive, Andersen's recent history will not make the
task any easier.

Over the last five years, the firm has been involved in several other
major
accounting scandals. It audited both Sunbeam and Waste Management, which
have had to restate their earnings after admitting fraud in their
financial
statements. (Andersen paid $110 million to settle lawsuits by Sunbeam
shareholders.)

During the late 1990's and in 2000, Andersen also suffered through a
messy
divorce from its consulting arm, Andersen Consulting, now a publicly
traded
company called Accenture.

The breakup was embarrassing for both Accenture and Andersen, which
pride
themselves on helping clients develop successful corporate strategies.
But
Andersen was more seriously hurt, because Accenture was bigger and
faster-growing than Andersen, said Dean E. McMann, chief executive of
Ransford, a consulting firm that advises the Big Five.

Without Andersen Consulting, Mr. McMann said, Andersen became a
middle-tier
audit firm, smaller than the rest of the Big Five. Its efforts to
develop
an in-house consulting business to replace Accenture have also lagged
behind.

"We thought that from that moment on they would be shopping to find a
partner," Mr. McMann said."We believe that Andersen's not going to
survive
alone."

Andersen's efforts to market itself have not been as successful as
Accenture's, said Francis Karamouzis, who follows the company for the
Gartner Group (news/quote)."It's been a struggle for them to establish
their own independent brand," she said.

Interviews with current and potential Andersen clients, she said,
indicate
that they do confuse the firm with Accenture, and that Andersen is not
the
first name that companies think of when looking for an auditor.

Accenture spent tens of millions of dollars advertising its new name
when
it dropped Andersen Consulting, she said. Since Arthur Andersen became
Andersen, she said,"you don't really see the same emphasis."

The firm's strength is its tax group, which would complement either
KPMG's
accounting business or that of Ernst & Young, said Mr. McMann of
Ransford.

In addition, he said, both KPMG and Ernst & Young have spun off their
consulting divisions, so they would be a good fit for Andersen, which
has
only a small consulting arm, he said.

But as it struggles to fashion a future, Andersen is still trying to get
its story straight. On Friday, Andersen said Mr. Berardino gave
inaccurate
testimony to Congress when he spoke in December, although it
characterized
his error as minor. If only the firm could say the same about the rest
of
the Enron mess.


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Wenn´s sich erst so richtig herumspricht, wie
die Enron-Manager massiv verkauft und gleichzeitig
Erfolgsmeldungen lanciert haben, wird auch den Haltern
anderer heißer US-Papiere so langsam dämmern, was das
"creative accounting" noch für lustige Überraschungen
für sie bereit hält.

SELL, SELL, SELL... ;-)


Ein Artikel aus der NYT.

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Before Debacle, Enron Insiders Cashed in $1.1 Billion in Shares

By LESLIE WAYNE

hile investigators are focusing on how much money investors and employees lost in the Enron Corporation (news/quote)'s collapse, some shareholders and lawmakers are now setting their sights on another target: the millions that Enron insiders received by selling their shares while the price was still high.

As Enron stock climbed and Wall Street was still promoting it, a group of 29 Enron executives and directors began to sell their shares. These insiders received $1.1 billion by selling 17.3 million shares from 1999 through mid-2001, according to court filings based on public records. They continued selling just before Enron's stock started to tumble early last year and the company began its slide into bankruptcy protection.

One of the biggest sellers was Kenneth L. Lay, who became prominent as the company's chairman and a leading contributor to President Bush. He was among more than a dozen Enron executives who received $30 million or more, including one who sold shares valued at $353.7 million.

Lawyers and spokesmen for the executives, board members and the company said that the sales were proper, and that the insiders had no special information or advantages over other investors.

"This issue is being investigated," said Robert S. Bennett, a lawyer for Enron."But at this point in time, I am unaware of any evidence that supports the allegation there was improper selling by members of the board or senior management."

Many of these Enron executives retain large holdings in the company, selling shares regularly, as executives at other companies do."In many instances, the sale of the stock was preplanned according to a strict timetable," Mr. Bennett said.

Mr. Lay himself sold Enron stock 350 times, trading almost daily, receiving $101.3 million. In all, Mr. Lay sold 1.8 million Enron shares between early 1999 and July 2001, five months before Enron filed for bankruptcy. As of last February, he still owned more than 7.7 million shares.

Mr. Lay sold his stock for $31 to $86 a share; this week, Enron was selling for under 70 cents a share. Often, Mr. Lay sold in amounts as small as 500 shares, while at other times he sold as many as 100,000 shares.

It has not been determined how much Mr. Lay or the others paid for their shares, or how much they gained. Much of Mr. Lay's holdings, and those of other executives, were in the form of stock options, which allowed them to buy shares at a discount.

Other top sellers were Lou L. Pai, the former chairman of an Enron subsidiary, who received $353.7 million for his 5 million shares; Rebecca P. Mark-Jusbasche, a director and former Enron executive who received $79.5 million for 1.4 million shares; and Ken L. Harrison, a director who sold 1 million shares for $75.2 million.

Jeffrey K. Skilling, the company's former chief executive, received $66.9 million for 1.1 million shares. Beginning in December 2000, Mr. Skilling began to sell his holdings at a pace of 10,000 shares about every seven days. He still owns about 600,000 shares and options, according to public filings.

Andrew S. Fastow, the company's ousted chief financial officer, who set up many of the financial partnerships that have been criticized for concealing Enron's large debts, received $30 million for his holdings.

A detailed accounting of these trades is contained in a lawsuit brought by Amalgamated Bank, of New York, which invested the pension money of union members in Enron shares. Representing the bank in this case, which is now in the Federal District Court in Houston, is the same law firm that brought shareholder suits against Charles H. Keating Jr. in the savings and loan scandal and against Michael R. Milken, the junk bond financier, for securities fraud.

While the suit has received little attention so far, it highlights one of the main points in the political debate now taking place in Washington — whether small shareholders were left out of a flow of information about Enron's deteriorating financial condition.

The differences in the trading strategies of the two groups — those outside the company who were buying Enron's shares and those inside the company who were selling them — reflect the different information that each group had, according to the suit.

"The defendants employed devices, schemes and artifices to defraud," the lawsuit states. It accuses the 29 defendants of"unlawful insider trading" and says the group"materially misled the investing public" by issuing false statements.

Senator Joseph I. Lieberman, Democrat of Connecticut and chairman of the Senate government affairs committee, has already announced hearings that will, in part, look at how Enron shareholders might have been deceived by the company's financial statements. Senator Barbara Boxer, Democrat of California, has also expressed concern for Enron's small shareholders, especially employees who put its shares in their 401(k) retirement plans only to lose their savings.

Representative Henry A. Waxman of California, the ranking Democrat on the House Commerce Committee, released a letter yesterday asking Mr. Lay to answer questions about optimistic statements Mr. Waxman said that Mr. Lay had made in e-mail messages to employees last August. In the e-mail, gathered by staff investigators, Mr. Lay said that Enron remained strong.

At Enron, more than half of the employees' 401(k) assets, or about $1.2 billion, was invested in company stock, which is now nearly worthless. Billions more were lost by other investors, from individuals to large institutions that bought Enron shares for the pension plans of unions and corporations.

The lawsuit claims the insiders withheld information, allowing Enron's shares to remain at an artificially high level while they were selling their shares."This is the most massive insider bailout that we've ever seen and we've been prosecuting these cases for 30 years," said William S. Lerach, one of the bank's lead attorneys."The overall size of this case is unprecedented."

Spokesmen for some of the defendants say that this group had done nothing wrong. An Enron spokesman, Mark Palmer, dismissed the suit as"completely without merit" and a"weak argument."

Gordon G. Andrew, a spokesman for Mr. Fastow, the former chief financial officer, declined to comment, but said that Mr. Fastow still had about 50 percent of his original holdings. Mr. Andrew said that Mr. Fastow's last stock sale took place in November 2000 and that Mr. Fastow had purchased shares in early 2001.

A spokeswoman for Mr. Skilling, the former chief executive, said that"there is absolutely no basis to the allegation that Mr. Skilling did anything improper with regard to the sale of Enron stock." The defendants have not yet filed answers to the complaint. Arthur Andersen & Company, also named, declined to comment.

At the top end of the selling was Mr. Pai, who headed an Enron subsidiary called NewPower Holdings (news/quote), an online retailer of electricity and natural gas. Before leaving Enron last spring, Mr. Pai sold five million shares of Enron between January 1999 and July 2001 for $353.7 million.

In January 2000, just 60 days after the formation of NewPower, Mr. Pai received more than two million Enron shares. He began to sell them almost immediately, mostly while they were trading above $70.

Enron directors, also named in the case, sold stock too. All Enron directors receive stock options as part of their $380,619 annual fees. Of that, 15 percent was paid in cash, the remainder in stock.

One director, Wendy L. Gramm, the wife of Senator Phil Gramm, Republican of Texas, sold all her 10,256 shares for $276,912. She sold the stock on one day — Nov. 3, 1998 — for $27 a share. Ms. Gramm said earlier that she and her husband decided to sell their Enron shares to avoid the appearance of a conflict. She was then paid in cash.

The Securities and Exchange Commission and the Justice Department are both investigating Enron. A Senate committee issued 51 subpoenas Friday as part of an investigation into the insiders' stock sales.

The investigations should aid the case against the insiders, said Michael Hennigan, a Los Angeles lawyer in the Orange County, Calif., bankruptcy lawsuit."I assume that the government is going after the exact same things that Lerach is after," he said, referring to the lawyer for the bank suing Enron.

Last week, a federal judge declined to immediately freeze the assets of the defendants, asking for further information before reconsidering the request.

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