Risk & Compliance

Andersen Defiant

Firm comes out swinging: pleads not guilty to obstruction charges, takes out ads in papers, organizes courthouse protests. Elsewhere: Accenture unl...
Stephen TaubMarch 21, 2002

It may not be up there with Bruno Haupman, but the upcoming trial of Arthur Andersen looks like it’s going to be high drama nonetheless.

On Wednesday, lawyers for the besieged Big Five firm entered a not guilty plea to a federal obstruction of justice charge. That charge stems from Andersen’s alleged role in shredding thousands of Enron Corp.-related documents. Andersen faces fines of up to $500,000 and up to five years of probation if convicted of the felony charge.

Management at Andersen has already acknowledged that shredding of Enron documents did occur at the company’s Houston office. Indeed, recent press reports indicate that Andersen employees destroyed Enron documents by the truckload.

But Andersen management has contended all along that any illegal shredding was not authorized by directors and officers in the firm’s Chicago headquarters. Instead, AA’s managers say the shredding was done at the behest of the firm’s Houston-based partners—and without the knowledge of the company’s top brass. In short, rogue partners ate Andersen’s homework.

Meanwhile, several hundred Andersen employees in Houston protested outside the courthouse, wearing shirts reading, “I am Arthur Andersen.” They reportedly chanted, “Drop the indictment! Save Andersen!”

In addition, Andersen’s 28,000 U.S. partners and staff launched a massive ad campaign in major newspapers on Wednesday, explaining “why we’re fighting back” and calling the indictment “tragically wrong.”

Clearly, Andersen is trying to win the battle of public opinion before the actual trial starts. They’ve certainly got plenty of time to wage that war: the case isn’t scheduled to start until May 6.

But as one accounting industry watcher noted, Andersen’s defiance comes as no big surprise: “Andersen has a very strong corporate culture.” And just what is that culture? “They’ve always had an ‘us-versus-the-world’ mentality.”

This could get very interesting.

Rendering Andersen, Update

As CFO.com reported yesterday, Andersen management is deep in negotiations to sell some of its non-U.S. operations.

And on Wednesday, BDO Seidman, the sixth-largest accounting firm, said it was discussing the purchase of some of Andersen’s U.S. operations. Reportedly, another BDO subsidiary has met with Andersen about the possible sale of its units in Mexico.

BDO has 2,700 U.S. employees, or about a tenth of Andersen’s workforce. The Chicago-based firm generated revenues of about $2 billion in 2001. By comparison, Andersen reported global sales of about $8 billion last year.

“This represents a very unusual situation,” conceded BDO general counsel Scott Univer in a Reuters interview. Univer noted that publicly listed companies account for just a small portion of BDO’s business, which is “focused on the middle market and private companies.” But if BDO was ever going to make the jump into the Big Five, now would seem to be the time.

Elsewhere, the Wall Street Journal reports that Deloitte Touche Tohmatsu (DTT) is still trying to work out a deal to buy Andersen’s U.S. tax and consulting operations. Purchasing Andersen’s tax practice would make a lot of sense for Deloitte. AA has a very robust tax business in the United States, but according to Bowman’s, DTT’s tax practice comprised only about 21 percent of the firm’s domestic revenues in 2001. By way of comparison, Deloitte’s consulting business accounted for nearly 46 percent of the accountancy’s U.S. sales last year.

Enron Fall: So Where Were the Ratings Agencies?

Standard & Poor’s Corp. and Moody’s Investors Service, under attack for being late to warn investors about Enron’s dire financial straits, told a Senate panel that Enron management intentionally misrepresented the company’s financial position. Indeed, the agencies claim managers at the Houston-based energy trader failed to reveal almost $4 billion in debt by concealing controversial special partnerships.

One for-instance: executives from the ratings agencies told lawmakers that Enron didn’t tell them about the Chewco and Raptor partnerships, even though they requested a full description of off-balance-sheet financing. Those two Enron special-purpose entities hid $1 billion in losses.

“Day by day it becomes ever clearer that Enron, far from providing anything like complete, timely, and reliable information to Standard & Poor’s, committed multiple acts of deceit and fraud,” Ronald Barone, a managing director of S&P, told the Senate Government Affairs Committee.

Nevertheless, the major rating agencies have not come out looking great in the Enron debacle. The Houston energy company enjoyed an investment-grade rating until December 2—just four days before the company filed for Chapter 11 bankruptcy protection. CFO.com and a number of business publications began reporting on the troubles at Enron in mid-October.

Accenture Selling Venture Portfolio

In case you needed it, here’s another sign that the New Economy is definitely old news.

Accenture has thrown in the towel on its venture and investments business. Management at the consulting firm said it would sell its venture portfolio due to large losses. Accenture executives said the consultancy would take a charge of $212 million to cover the loss on the sale.

Originally, Accenture had planned to invest up to $500 million in new Internet-related businesses through its Palo Alto, California, business unit, Accenture Technology Ventures, according to deal.com. But now, company management has reportedly decided to sell most of its minority stakes in private companies and invest only in “equity or equity-linked securities” that are liquid.

Since its inception in December 1999, Accenture Technology Ventures has invested $325 million in more than 75 companies. The company was initially called Andersen Consulting Ventures, before Accenture split from Arthur Andersen. Right now, that’s looking like a good move.

But whatever the name, management at the investment company has had to rethink its strategy. The company reportedly planned to invest as much as $500 million during the ensuing five years to create online businesses and a global network of “Dot-Com Launch Centers” to work with companies after being incubated, according to published accounts. Now the company is looking for somebody to buy its venture portfolio.

We Cheat in the Land Down Under?

Management at Corrpro Cos., a provider of corrosion-control engineering services, said Wednesday it had discovered a different kind of corrosion at its Australian subsidiary. Apparently, the reported revenues at the subsidiary didn’t quite match up to what the company was actually bringing in. Corrpro management blamed the discrepancies on accounting irregularities caused by apparent internal misconduct.

According to Corrpro, the irregularities were discovered by the parent company in connection with an internal review of the subsidiary’s working capital management practices and cash-flow problems. The review revealed that the sub wasn’t actually generating the kind of income it was reporting. Corrpro management immediately began an internal investigation, headed by the audit committee of its board of directors.

“The irregularities involve the overstatement of revenues and understatement of expenses by the Australian subsidiary,” said the company in a statement. Those irregularities apparently occurred fairly regularly, dating back to at least calendar year 2000, Corrpro management added.

The company also announced it has named Robert M. Sloan as senior vice president and chief financial officer.

Short Take

Alcon Inc. on Wednesday sold $2.3 billion in stock—the largest initial public offering this year. The company sold 69.75 million shares, or 24 percent of its total shares, at $33 per certificate. The offering price came in at the middle of the anticipated range of $31 to $35 per share. Alcon is the world’s largest eye care company and a unit of Switzerland-based giant Nestle AG.