Andersen Reaches Settlement in Baptist Foundation Lawsuit
One down, one to go, may be the chant at Andersen these days. The first of two major lawsuits was settled today when Andersen agreed to a $217 million payment to end litigation brought against the Big Five firm relating to its audit of the now-bankrupt Baptist Foundation of Arizona (BFA). The settlement resolves all pending litigation brought against Andersen by the BFA investors, the BFA bankruptcy trustee, and Arizona state regulatory bodies.
The settlement is for the same amount that Andersen agreed to in March, only to have the firm's insurer (owned by Andersen and its international affiliates) fail to make the required payment which was due in April.
As part of the settlement, Andersen accepts no blame for the failure of the BFA to meet its obligations to investors. In a news release published by the firm, Andersen stated, "We believe this resolution is fair and reasonable to investors and to our firm and recognizes the responsibility of a number of parties in failing to stop this tragedy."
Andersen has taken the position in trial that investors were victims of a fraud perpetrated by the officers and board of directors of the BFA and that those officers and directors "engaged in a conspiracy of silence to deny essential information about BFA's financial condition to the Arthur Andersen auditors."
The settlement was approved late Monday in Phoenix by Maricopa County Superior Court Judge Edward Burke after Andersen made a nonrefundable $11.3 million payment on Monday, the first installment due on the settlement. The terms of the settlement call for Andersen to pay the balance of $205.7 million by June 4, or to arrange for installment payments, with interest, that will be due in full by October 25.
In addition, two members of the firm who worked on the BFA audit, retired partner Jay Ozer and principal Ann McGrath, have agreed to relinquish their CPA licenses in Arizona. Testimony during the trial indicated that Andersen auditors, including Mr. Ozer and Ms. McGrath, ignored warnings from a former BFA finance employee that the foundation was hiding millions in real estate losses.
The BFA trial has ended, and the legal spotlight can now fall completely on Andersen's obstruction of justice trial, now in progress in the U.S. District Court in Houston.