Risk & Compliance

Price of Shame? Andersen Pays $60 Million to Enron Claimants

Andersen Worldwide settles with plaintiffs, U.S. unit teeters on the brink. Plus: Enron going for the thin look, Dynegy going without a CFO, and SE...
Joseph RadiganAugust 28, 2002

Andersen Worldwide SC, the Swiss-based coordinating entity for Arthur Andersen’s global operations, has agreed to pay $40 million to former investors and employees of Enron Corp. and $20 million to the bankrupt energy trader’s creditors.

The settlement is the first exchange of funds in $29 billion of class-action claims lodged against Enron, Andersen, and the energy company’s bankers and lawyers. The settlement needs to be approved by U.S. District Judge Melinda Harmon, who is trying the class-action case. Harmon also presided over Andersen’s criminal trial earlier this year, which resulted in a guilty verdict.

The Chicago-based U.S. arm of the accountancy, Arthur Andersen LLP, did not contribute to the settlement. Management at Arthur Andersen has said it expects to cease its auditing operations at the end of this week. Judge Harmon will sentence the company on October 17.

The settlement was announced by the University of California’s Board of Regents, the lead plaintiff in the class action suit representing Enron shareholders. According to the UC board, as a result of the settlement, “Andersen Worldwide SC and its non-U.S. member firms will be released from liability and dismissed from the suit.”

The U.S. arm will still be subject to further claims. But since Arthur Andersen LLP is apparently about to go out of business, it’s not clear if the plaintiffs will be able to recover anything at all from the U.S. operation unless they pursue the firm’s former partners individually.

Andersen Worldwide initially tried to distance itself from the case, according to the Associated Press. In April, the Swiss group said that since the practices in each local country are autonomous, the international operations bore no legal liability for the Enron fiasco.

Negotiations to settle claims against Andersen’s American practice broke down before the company’s obstruction of justice trial began in May. The U.S. unit had offered $750 million earlier this year, Bloomberg reported. It then slashed that offer to $300 million as its business melted away and its ability to pay any amount became doubtful.

The plaintiffs began negotiating with the international organization after talks with the U.S. arm broke down, the Associated Press reported.

Once Andersen was convicted in June, the Big Five accounting firm agreed to end its U.S. audit practice.

Enron: From Asset Light to Asset-Free?

Enron, on the other hand, remains a going-concern. Just how long it remains a going-concern… well, that’s a different question

On Tuesday, management at the bankrupt energy trader said it will sell its most valuable remaining assets. According to Reuters, if all of the proposed asset sales are completed, Enron will have essentially hollowed out the planned Opco Energy Co.. As you may recall, interim CEO Stephen Cooper told regulators Opco would ultimately replace Enron.

One of the 12 assets being peddled: Portland General Electric, a Portland, Ore. utility Enron bought five years ago. The power provider serves 740,000 customers in the Pacific Northwest.

According to Reuters, other Enron assets on the block include the Transwestern Pipeline that extends from west Texas to California; Enron’s half-interest in the parent of the Florida Gas Transmission Co.; its indirect interest in the Northern Border Pipeline; plus several Brazilian power plants and transmission assets.

All told, the assets Cooper apparently wants to sell represent 90 percent of what’s left of Enron’s business.

An anonymous source told the wire service: “If all 12 of these things were sold, you wouldn’t have an Opco left. The whole thing is maximizing value for the asset. If a sale is the better value, then the asset is sold.”

Enron’s ability to sell any of these assets at an attractive price may be limited, however. Energy companies as a group are shopping around a host of assets, valued at around $11 billion. But demand for these assets is soft, say industry watchers.

For example, Dynegy Inc. sold its 16,600-mile Northern Natural Gas pipeline for $928 million in early August. But the company acquired the pipeline from Enron in January for roughly $1.5 billion after a proposed merger of the two companies fell through.

If Enron management fails to get reasonable offers for its assets, it may pull back from doing any deals.

Dynegy: Who Needs a CFO?

Speaking of Dynegy: that company has come up with a novel approach to solving its accounting problems.

On Thursday, the troubled energy company announced it plans to do away with the position of chief financial officer. Instead, Dynegy will have three different executives oversee various parts of the company’s finance function.

Louis Dorey, who took over the job of CFO two months ago when his predecessor Rob Doty resigned, will become executive vice president for finance. In that role, he will handle the company’s financings, its treasury operations, and will work with lenders and credit rating agencies.

Hugh Tarpley will head the newly created corporate development department under the revamped structure. Tarpley, the current executive vice president for strategic investments, has been with Dynegy since 1997.

Michael Mott, who joined the company in 1995, has been promoted to senior vice president, chief accounting officer, under the new system. Mott will oversee the company’s tax department.

Dorey and interim CEO Dan Dienstbier did not certify Dynegy’s financial statements with the SEC by the August 14 deadline. Not signing made sense. Dynegy has become embroiled in several accounting scandals this year, and management has already acknowledged that one of its gas transactions may have artificially pumped up the company’s earnings. Dynegy is currently being investigated by the SEC.

Dynegy and its outside auditor, PricewaterhouseCoopers LLP, are re-auditing three years worth of financial statements while also restating its results for 2001.

SEC Wants It Fast Fast Fast

There’s no rest for the weary.

CFOs who rushed to meet the Aug. 14 date for certifying their companies’ financial statements will now face shorter periods for filing quarterly and annual corporate reports. This, thanks to a decision reached on Tuesday by the Securities and Exchange Commission.

In a 5-0 vote, the Commission decided to shorten the deadline for 10-K reports to 60 days after the close of a company’s fiscal year. Currently, filers have 90 days to file those annual forms with the SEC. Quarterly 10-Qs will be due in 35 days instead of the current 45-day grace period.

The SEC had been planning to slash the time down to 30 but relaxed its stance after receiving comments from companies that will be affected by the rule.

According to an explanation on the SEC’s Web site, the 10-K deadline will remain 90 days for the first year, change to 75 days for the second, and fall to 60 days in the third. Quarterly report deadlines will remain 45 days for the first year, fall to 40 days in the second, and change to 35 days for the third year. The reductions to 75 days for annual reports and 40 days for quarterly reports will begin for companies with fiscal years ending on or after Dec. 15, 2003.

Companies will also have to disclose whether they make their annual reports available on their Web sites.

As part of its enforcement of the Sarbanes-Oxley Act, the SEC is also requiring CEOs and CFOs at all publicly traded companies to certify their financial statements when they file their 10-Ks and 10-Qs. Unlike the Commission’s June order — which imposed a certification requirement only on companies with revenues greater than $1.2 billion — the new rule applies to all corporations that file quarterly and annual reports with the SEC.

The SEC is also requiring certification statements from mutual funds and other investment services specialists as part of those companies’ semi-annual filings with the agency.

In addition, the Commission is calling for corporate insiders to disclose their stock trades within two days. At present, insiders only have to file Form 4 by the tenth day of the month following a trade. The new insider trading rule becomes effective for all insider stock transactions beginning on Aug. 29, although the SEC will accept comments until the end of September.

Short Takes

  • Deloitte & Touche LLP has quit its role as auditor for Cudahy, Wisc.-based Ladish Co. after only two months on the job, Bloomberg News reports. Ladish, a maker of metal components used in missiles, helicopters, and planes hired Deloitte in June to replaced its previous auditor, the embattled Arthur Andersen.

According to Bloomberg, Deloitte said it had not actually performed any audits at Ladish. Apparently, the accounting firm and the client disagreed over the treatment of Ladish’s deferred tax assets. Reportedly, Deloitte argued that the treatment does not comply with Generally Accepted Accounting Principles. Bloomberg reports that Andersen had vetted the practice.

In a statements issued Tuesday afternoon, Ladish CFO Wayne E. Larsen, said: “Because our business is cyclical, we have felt that leaving this asset off our balance sheet and recognizing the tax benefits as utilized on an annual basis was the conservative approach.”

In an 8-K filed late Monday, Ladish disclosed that Deloitte “concluded that the company’s financial statements as of and for the quarters ended March 31, 2002 and June 30, 2002 and for the year ended December 31, 2001 and for an undetermined number of prior fiscal years, required restatement.”

  • A U.S. District Court judge in Boston has permitted a complaint filed by shareholders of the now-bankrupt Lernout & Hauspie to proceed against KPMG’s U.S. and Belgian subsidiaries. The judge rejected the shareholders’ attempt to extend the suit to cover the auditor’s U.K., international, and Singapore operations.

Lernout & Hauspie, a maker of speech-recognition software which maintained joint headquarters in Burlington, Mass., and Belgium, fell into bankruptcy in November 2000 after it was discovered that it had inflated sales in 1998 and 1999.

In his ruling, the judge said KPMG U.S. acted with “recklessness and actual knowledge” on various occasions, including in its preparation of the software firm’s 10-K for 1999,” Reuters reported.

  • The former CFO of Boron LePore & Associates Inc. agreed to pay more than $500,000 to settle an insider-trading case, Reuters reported. The SEC had accused 47-year-old Michael Foti of selling 20,900 shares for $30 to $31 in February 1999 just a day before the company announced an earnings shortfall that sent its share price tumbling to $17.50.

According to Reuters, the SEC alleged that the timing of Foti’s trades helped him avoid $245,000 in losses. Boron LePore, which was a Wayne, N.J.-based marketing and consulting firm for the pharmaceutical industry, was sold in June by drug wholesaler, Cardinal Health Inc.

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