Andersen Sued by Arizona Accountancy Board

It is the largest penalty ever sought by the Arizona State Board of Accountancy - the board is asking for $600 million to reimburse investors who relied on Andersen's audit of the now-bankrupt Baptist Foundation of Arizona.

The Arizona State Board of Accountancy has filed a $600 million complaint against Arthur Andersen, claiming the Big 5 firm failed to properly audit the Baptist Foundation of America (BFA). This is the latest and largest of several lawsuits pending against Andersen in this matter.

Earlier this year the BFA sued Andersen, claiming that the auditors failed to pursue suspicious, non-arms' length transactions of BFA senior managers that turned into a "Ponzi Scheme" whereby money from new investors was used to pay off old investors. In addition, Andersen has faced inquiries from the Securities and Exchange Commission regarding the audit.

The current complaint filed by the Arizona board also seeks to revoke the accounting certificates of three Andersen accountants.

The complaint alleges that Andersen acquired enough information during the audit to detect the Ponzi scheme, but failed to identify the possible fraud. Instead, Andersen issued a "clean" opinion of the contested 1997 financial statements.

The Arizona Attorney General, Janet Napolitano, has indicated that the state will attempt to issue severe probationary terms for Andersen. A hearing is expected to occur within the next 60 days.

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