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Andersen scandal still painful

Tue., April 26, 2005

HOUSTON — For many people, Arthur Andersen LLP conjures up images of the fall of Enron Corp.

The memories are particularly painful for Andersen employees laid off when the accounting firm cratered amid the Enron scandal. And so this week, when Andersen is expected to appeal its 2002 obstruction of justice conviction to the U.S. Supreme Court, they’re showing little enthusiasm.

“When I first heard they were appealing it, I thought they were crazy and it was a waste of time and money,” Randy Paschke said. “It’s not going to bring the firm back.”

Paschke, a 32-year veteran of Andersen’s Detroit office, is now chairman of the accounting department of Wayne State University’s school of business administration.

Andersen’s U.S. operations barely exist with fewer than 200 Chicago-based employees who largely handle lawsuits. Most of its 28,000 workers moved to other accounting firms while others, like Paschke, switched careers. Partners lost their capital — investments in the firm of $1 million or more — and may only get a fraction back after Andersen settles and litigates lawsuits.

On Monday, Andersen settled a lawsuit with WorldCom investors who claimed the auditors failed to protect them from the communications company’s historic $11 billion accounting fraud. It’s not clear where Andersen will get the money for a settlement. It likely has funds left over from liquidating its assets or in its reserves for insurance losses, said industry expert Mark Cheffers.

Andersen went to trial in May 2002 with little more than a shattered reputation to save. The firm was accused of destroying Enron records just as the government began investigating the Enron’s finances. Its defense argued company policy required the destruction of client-sensitive draft documents.

In its appeal, Andersen claims a federal judge’s jury instructions were too vague. The 5th U.S. Circuit Court of Appeals upheld the conviction, calling the firm a member of Enron’s “supporting cast.” Now, it’s up to the Supreme Court to decide.

“It might allow for a little bit of a positive sense of closure for some people, but it can’t replace jobs,” said Jonathan Goldsmith, a former Andersen associate who runs a Web site for former Andersen workers. Recent posts include a reminder about a reunion next month for former Andersen workers in Atlanta.

James Hecker, a former partner in Andersen’s Houston office who never touched an Enron audit, said he was turned away by firm after firm for a year and a half after Andersen became a felon.

“Andersen and Enron, you want to talk about the gift that keeps on giving?” said Hecker, now a financial planner in Houston. “It just never goes away.”

David Duncan, Andersen’s former top Enron auditor, remains the only Andersen staffer charged with a crime. He pleaded guilty three years ago to obstruction and testified in the firm’s trial, but remains free as he cooperates with prosecutors. Barry Flynn, one of his attorneys, said Duncan likely will testify in January’s fraud and conspiracy trial of Enron founder Kenneth Lay, former CEO Jeffrey Skilling and former top accountant Richard Causey, further delaying his sentencing.

“He’s just hanging in there,” Flynn said. “There are people just like him whose lives have been put on hold.”


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