Next For Andersen: Indictment? Merger? Chapter 11?
Possible Indictment for Obstruction of Justice
Andersen's future took an unexpected turn for the worse last week as the Justice Department explored options that could result in a devastating blow to the accounting giant. The Wall Street Journal is reporting that federal prosecutors have alerted Andersen to the possibility of a criminal indictment leveled at the firm - not at individuals - on obstruction of justice charges. "It totally took us all by surprise," an Andersen spokesman told the Journal in reference to the developments with the Justice Department. "It makes no sense to take us down. If they do that, no one will get anything from us."
While an indictment could lead to greater cooperation in the investigation, it could be a final blow in the effort to salvage the reputation Andersen has as an auditor.
How the Justice Department will move forward remains an unknown at this point. Noting he has a deep interest in keeping Andersen alive, the bankruptcy trust's lead attorney, John P. Coffey, says he "would be extremely surprised if the Justice Department were going to indict Arthur Andersen. It's akin to a death warrant." Andersen's attorneys will be meeting with the Justice Department this week to try to avoid an indictment.
"Actively Seeking" a Merger With Deloitte Touche Tohmatsu
On another front, Andersen advisers have approached Deloitte Touche Tohmatsu about the possibility of selling part or all of Andersen to the third largest CPA firm. Deloitte spokesman Paul Marinaccio acknowledges that the firm "has been conducting ongoing scenario planning in response to the current and projected future state of the profession." A merger of these two giants would provide the "white knight" that Andersen needs to stop the flow of clients, to provide its partners with a more secure future, and restore its ability to attract and retain staff for the future. But a merger with any other firm must be carefully crafted to avoid bringing the new partner into the huge legal liability faced by Andersen today. You may recall that Enron's creditors have rejected a $750 million settlement offer by Andersen attorneys.
Although there are no official comments, individuals close to the discussions have indicated that an agreement may be reached as early as this week.
Bankruptcy Chapter 11 Filing is an Option
Although it's a relatively uncharted path for a professional services firm, Andersen advisers are exploring the possibility of a Chapter 11 bankruptcy filing to create a mechanism to shield a merger partner from Enron-related liabilities. A move like that would be enormously complex, and is one of the key hurdles in pursuing a possible merger partner.