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Friday, 15 March, 2002, 09:29 GMT
Enron auditor faces criminal charges
Andersen logo
Andersen is thought to have lost at least 30 clients
Arthur Andersen, the US accountancy firm embroiled in the Enron bankruptcy scandal, has been indicted by a federal grand jury on the charge of obstruction of justice.

It shouldn't be a surprise to anyone that serious charges have serious consequences

US Deputy Attorney General Larry Thompson
The indictment says the company tried to undermine the justice system by destroying "tons" of paperwork and tried to purge electronic data in order to avoid an investigation into the collapse of Enron, the largest bankruptcy in US corporate history.

Andersen said it would "vigourously" defend itself against the charges, which it said were "baseless".

Analysts said the company could, if convicted, be barred from auditing stock market-listed companies. This would effectively put it out of business.

Big names desert

There could also be fines. In the meantime, Andersen is struggling to limit the damage to its reputation.

Several big-name audit clients including Delta Air Lines, the number three US carrier, Federal Express and pharmaceuticals giant Merck have already abandoned the firm, and more are thought to be uneasy about continuing links with Andersen.

Merger talks with rivals have collapsed amid continuing doubts over whether Andersen's exposure to litigation can be contained.

Andersen said the prosecution was "a gross abuse of government power".

"A criminal prosecution against the entire firm for obstruction of justice is both factually and legally baseless," a company statement added.

'Unparalleled initiative'

The indictment alleges that senior Andersen officials told its employees to destroy thousands of documents within days of notice that the company would be investigated by the US financial regulator, the Securities & Exchange Commission.

The indictment called the destruction an "unparalleled initiative to shred physical documentation and delete computer files" which involved "tons" of documents.

"There is a serious matter which undermines the criminal justice system," said Department of Justice deputy Attorney General Larry Thompson.

"It shouldn't be a surprise to anyone that serious charges have serious consequences," he added.

The firm's executives could face fines of up to $500,000 and five-year probation terms if convicted.

The SEC has said it has contingency plans to ensure that, if Andersen collapses, other auditing firms will be able to take over its commitments.


Andersen has been trying to merge with another accountancy firm in order to stem the loss of its client base and avoid potentially catastrophic legal cases from Enron investors.

Top accounting firms worldwide
Deloitte & Touche
KPMG International
Ernst & Young
Andersen has lost several prestige clients and come under close scrutiny from others for its part in last year's collapse of US energy giant Enron with huge hidden losses.

It could now face lawsuits from disgruntled Enron employees and people who owned Enron stock, which is now virtually worthless.

So far, Andersen is thought to have lost more than 30 clients who provided it with combined annual fees of about $100m.

Rivals Deloitte Touche Tohmatsu and Ernst & Young both walked away from merger talks with their beleaguered rival, saying it was unwise to pursue plans while Andersen's legal problems remained unresolved.

The BBC's Patrick O' Connell
"The indictment claims Andersen had shredded documents after enquiries began"
Oracle CEO Larry Ellison
"It is extraordinary"
BDO Seedman accountant, Leland Grahl
"The whole accounting profession is going to be changed by this"
See also:

15 Mar 02 | Business
Andersen UK denies Enron cover-up
02 Mar 02 | Business
Andersen suffers double blow
05 Feb 02 | Business
Audit giants called to account
29 Jan 02 | Business
Andersen on the defensive
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