WorldCom Class-Action Suit Against Andersen to Proceed

In the last few weeks there has been good news and bad news for defunct accounting firm Arthur Andersen LLP as it strives to repair its reputation.

Last month the Supreme Court agreed to hear an appeal of the company's June 2002 obstruction of justice conviction. That's the good news. This week, a federal judge in New York ruled against a motion to dismiss a class action suit brought against Andersen by WorldCom Inc., the Wall Street Journal reported.

The WorldCom suit claims that investors suing Anderson had "identified a host of audit failures," the Journal reported.

New York Southern District Court Judge Denise Cote wrote in a 60-page opinion that those failures "would permit a jury to find that there was an egregious refusal to see the obvious, repeated failures to investigate the doubtful, and a pattern of acquiescence in improper accounting practices." A spokesman for Andersen declined to comment.

The disappointment comes in the wake of a significant win. The 2002 federal investigation obstruction conviction was upheld last June by the federal appeals court so the Supreme Court's decision to hear the case is a victory for Andersen, the Chicago Tribune reported earlier this month.

"The firm is pleased that the Supreme Court has agreed to consider its case given the importance of the legal issues and the potential impact on businesses and individuals in the United States," said an Andersen spokesman at that time.

Andersen had served for nearly two decades as the auditor for WorldCom and its predecessor companies. After WorldCom disclosed accounting irregularities totally billions of dollars in 2002, Andersen withdrew its 2001 opinion on the company's annual report. Since emerging from bankruptcy last year, WorldCom has been known as MCI.

The trial against Andersen, 17 banks and other defendants in the WorldCom case is set to begin Feb. 28, the Journal reported.

Judge Cote said that the lead plaintiff, the New York State Common Retirement Fund, had presented evidence to support its argument "that Andersen acted in willful blindness to the realities at WorldCom and in abrogation of its duty as an auditor." She said, "There is no dispute that Andersen understood that its unqualified certification of the WorldCom financials would carry great weight with investors. This is sufficient to constitute proof of recklessness."

You may like these other stories...

We've all been there. Trying to make our work-lives more efficient, transfer knowledge to newer team members, and leverage our practices. Sometimes it works, and sometimes, well, the result is embarrassing at best.Here...
From May 20-23, the Association for Accounting Marketing (AAM) held its annual conference. Frequent contributor Sally Glick picked up some ideas that she will be sharing with us in the coming days, as she has done in...
Success, for a practitioner in a busy CPA firm, requires the ability to handle multiple tasks effectively. To get everything done, CPAs typically track their agenda with a "to do" list or other open-item systems to...

Upcoming CPE Webinars

Jul 24
In this presentation Excel expert David Ringstrom, CPA revisits the Excel feature you should be using, but probably aren't. The Table feature offers the ability to both boost the integrity of your spreadsheets, but reduce maintenance as well.
Jul 31
In this session Excel expert David Ringstrom helps beginners get up to speed in Microsoft Excel. However, even experienced Excel users will learn some new tricks, particularly when David discusses under-utilized aspects of Excel.
Aug 5
This webcast will focus on accounting and disclosure policies for various types of consolidations and business combinations.