Andersen Assesses Survival Odds

HOUSTON – Shattered accounting giant Arthur Andersen on Friday gauged the fallout from its collapsed talks to settle a federal criminal charge against it, as its options for survival turned increasingly bleak.

But sources close to negotiations to settle a massive shareholder class-action suit filed against Andersen for its role in the Enron Corp. collapse said the potential for a settlement there was improving.

"We are preparing for trial and just trying to see where things stand," a source close to Andersen said of the morning-after mood inside the firm.

Weeks-long negotiations between Andersen attorneys and the U.S. Justice Department ended on Thursday after a government-set deadline passed to settle the charge of obstructing justice. Andersen said it did not have enough time to review the last deal on the table, and both sides turned toward preparing for a May 6 trial before U.S. District Judge Melinda Harmon in Houston.

An indictment unsealed on March 14 charges the Chicago-based accountant with destroying thousands of records of its audits of major client Enron. The April 9 guilty plea of the top partner on the Enron audit, David Duncan, to obstruction of justice severely hampered Andersen's ability to defend itself at trial.

Andersen has of late said it wanted to settle its civil, criminal and regulatory cases all at once, so partners can get an accurate picture of what their post-Enron future would look like and whether it would be profitable. The firm has lost more than 230 clients already, and more desert each day, dimming its prospect for survival even further.

Several practice groups have already decided to join rivals, and even more are working on similar deals. Andersen rival Deloitte Touche Tohmatsu is in talks to buy Andersen's tax advisory unit.

The all-at-once strategy may have changed in the wake of Thursday's breakdowns, since talks on the civil side were still ongoing.

"We've come miles and miles and it's closer to getting done than not, but we still have to work out the details," one plaintiff's lawyer said. "People are still talking."

There was no suggestion as to when the settlement, being overseen by a court-appointed mediator, would come.

Andersen has said it welcomes further talks with the Justice Department, but the government has said it had already turned its attention toward preparing for trial.

NO OBVIOUS SOLUTION

But with no obvious solution, Andersen is mulling its next moves.

Some Andersen sources have suggested that one possible option might be to simply plead guilty without a deal and accept the consequences. Such a plea, they said, would be part of an endgame strategy that involves a dissolution of Andersen, an organic extension of the breakup already ongoing.

Bankruptcy, which Andersen suggested as a possible solution to its problems in the days just before the indictment against it was unsealed, would likely fit into that strategy, the sources said.

One source close to Andersen said on Friday that it was too early to tell whether that option was still on the table.

Robert Mintz, a former federal prosecutor and white collar defense specialist at the law firm of McCarter & English, said Andersen's problem in negotiating -- now and in the future -- is that not all of its partners are of the same mindset.

"No doubt, miles from Houston and Chicago, there are partners saying 'Why do we have to take the hit for activities we were not aware of and we did not condone?"' Mintz said. "Other partners are not even sure partnership is even worth saving."

Secondly, Mintz said, the structure of Andersen's partnership -- with independent partners with diverse interests -- does not lend itself to coherent, rapid action.

"It's not the kind of organization that can make snap decisions, particularly decisions that are of the magnitude they are being asked to make," he said.