VideoUgly, very ugly.
Over the weekend, reeling auditor Arthur Andersen agreed to pay $217 million to settle claims by investors who say they lost hundreds of millions of dollars with the Baptist Foundation of Arizona, a nonprofit company. Andersen was the auditor for the Baptist Foundation, which investors claim was nothing more than a Ponzi scheme.
The Baptist Foundation settlement is the second-largest amount ever paid by a Big Five accounting firm to settle litigation not associated with the savings and loan crisis. It's also about twice the largest settlement that Andersen has ever paid out. The agreement also settles several other related suits against Andersen that arose from the 1999 collapse of the Baptist Foundation of Arizona, the largest nonprofit bankruptcy in American history.
BFA and its subsidiaries had marketed securities as retirement vehicles for investors, and served as a custodian for tax-deferred individual retirement accounts. At the time BFA filed for bankruptcy in November 1999, it had $650 million in total liabilities and listed assets of approximately $290 million. BFA's liabilities included about $585 million owed to over 11,000 investors.
Under the terms of the settlement, Andersen will pay about $217 million to the unsuspecting investors, who accused senior managers of the foundation of using transactions with companies run by current and former foundation executives to hide investment losses, according to Saturday's New York Times.
Andersen will also pay $640,000 to the Arizona State Board of Accountancy to cover the costs of its investigation, according to the paper.
Two Andersen executives will no longer be able to keep their CPA licenses in Arizona, said the paper. Also, under the settlement a three-member board must review Andersen's audit work in its Phoenix office for the next two years. "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," said Andersen in a statement.
But moving forward is getting tougher by the day for Andersen. On Friday, management at drug giant Merck announced that it was firing the firm as the company's auditor. Merck joins a growing list of high-profile clients that have distanced themselves from Andersen ever since the Enron scandal broke.
Management at Merck said it appointed PricewaterhouseCoopers as the company's outside auditor for 2002. "This appointment concludes a rigorous selection process that was part of Merck's annual formal review of auditing services," said company management in a statement.
Andersen had been Merck's auditor for over 30 years. In light of recent attention to company practices regarding the role of outside auditors, the drug company's management said it will rotate its lead audit partner every 5 years. "The AICPA practice rule requires that the lead audit partner be rotated every 7 years," noted Merck in a statement.
While it remains unclear which Big Five firm will benefit the most from Arthur Andersen's travails, so far it appears that PwC has picked up the bulk of Andersen's former clients.
So Where Is Chip David?
Take-Two Interactive Software Inc. is restating results for the second time in several months.
Management at the video-game publisher said late last week it would restate the results for the last three quarters of fiscal 2001 because of math errors, according to an amended annual filing with the SEC.
Back in December, the company restated results for all of fiscal 2000 and the first three quarters of fiscal 2001 because it had overstated revenues.
Take-Two will pare its fiscal second-quarter net loss by $169,000, to $11.4 million. It will also cut third-quarter net income by $794,000, turning a profit into a loss of $665,000. The company reduced its fourth-quarter net loss by $625,000, to $4.7 million.
When it first restated results on December 17, the company reported that Chip David would be replaced as CFO by Albert Pastino. Management did say David would remain with the company, however. But on February 13, the company announced that Pastino had resigned and would be replaced by Karl Winters. And in its most recent filing, Take-Two said David was no longer with the company. Programs are available in the lobby.
Take-Two management has said that the company's accounting problems are related to the way it recognizes revenue for products sold and then returned to the company. It says it recognizes revenues when games are shipped rather than when retailers accept the inventory.
Meanwhile, in other restatements:
PG&E Corp. confirmed Thursday it will restate its earnings dating back to 1999 to reflect changes in the way the power company accounts for several leases that hadn't been included on its books.
And Measurement Specialties Inc. on Friday said for the third time that it would delay the release of its fiscal third-quarter results. The company has said it is investigating whether it needs to restate some past results.
CA Downgraded
Wells Fargo & Co. filed a shelf registration to sell up to $10 billion of debt, preferred stock, depositary shares, common stock, purchase contracts, and warrants. The company said it intends to use the net proceeds for general corporate purposes, including investments in or advances to subsidiaries, repayment of obligations, and reducing outstanding commercial paper and other debt.
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