Andersen Broaches a Settlement Plan

The Andersen accounting firm has floated a plan to settle dozens of lawsuits from its failed audit of Enron Corp., a move that represents a savvy strategy to force shareholders and creditors to negotiate jointly so that neither gets left out, legal experts say.

Such a tactic also could speed the resolution to the claims against the large accounting firm and end an anticipated hemorrhaging of clients and staff, industry observers said Thursday.

But the initial figures floated--$600 million to $800 million, according to one attorney involved in the case--may be too small to satisfy the claims of the competing interests of shareholders involved in a class-action lawsuit and creditors, who are separately seeking restitution in federal Bankruptcy Court.

Andersen, which is the target of multiple federal investigations for its role in the failure of the Houston-based energy trader in December, provided little detail about its efforts.

“Reaching out to the groups affected in this case is consistent with our commitment to address the issues raised by Enron’s collapse in a straightforward and constructive manner,” Andersen said in a statement. “We think it is in the best interests of all parties to deal expeditiously and responsibly with what has occurred.”

“We remain confident that we can work through this successfully, and we want to focus our attention on taking the steps and making the reforms needed to strengthen our firm, the accounting profession and the capital market system,” Andersen said.

Andersen floated the idea in separate meetings with Enron creditors in its bankruptcy proceedings and a group of shareholders who have filed a class-action lawsuit seeking damages from the Chicago-based accounting firm.

During a conference call between attorneys in the class-action lawsuit Feb. 14, lawyers for Andersen came on line “saying that Andersen was interested in talking about a settlement,” said Trey Davis, spokesman for the University of California system, which was named lead plaintiff in the shareholders’ lawsuit Friday. The UC system lost $145 million in pension and endowment funds in the Enron bankruptcy filing.

There have been “no substantive discussions,” Davis added. “We have been the lead plaintiff in this case for only three business days. You can’t have a settlement until we know all the facts in the case.”

The university joined the lawsuit in December, claiming that it was duped by a “massive insider trading” scheme in which the company and the Andersen accounting firm issued false financial statements and made “false and misleading statements about the company’s purportedly record results and strong operating performance.”

As a lead plaintiff, the university and its law firm manages the litigation on behalf of the other plaintiffs in the shareholders’ suit.

Charles Parker, a Houston attorney who represents New York and Florida pension funds in the class action, said Andersen’s entreaty is “just the first round of what will be many rounds of discussion.”

He said the initial figures broached aren’t enough to satisfy the claims of all the interested parties in the Enron debacle.

“What we need is an independent assessment as to the ongoing viability of Andersen as a business enterprise and as to how much they can pay,” Parker said.

The attorney said Andersen has about $250 million in insurance and could come up with hundreds of millions more from its operations. Parker and others also believe that Andersen’s 1,300 U.S. partners will have to make some sort of contribution in the form of a partnership assessment.

“But the only way they would pay is if they believed that Andersen had a future as a business enterprise,” Parker said. “The fact is that this firm is worth more to everybody alive than dead.”

“I don’t believe you will see anybody agree to a settlement without a partnership call or assessment,” said John C. Coffee Jr., an accounting expert and law professor at Columbia University.

Coffee added that he wasn’t surprised that Andersen was starting to move now to settle the lawsuits and claims.

“They were waiting for the court to appoint a lead plaintiff [for the shareholders] so that they would have someone to negotiate with,” Coffee said.

“This also is a very astute strategy to try to turn the two principal groups of plaintiffs in this case against each other in a fight over a limited amount of funds,” he said.

Neither group, for example, would want to see the other gain an advantage in negotiations.

The worst scenario for Andersen is to have to negotiate a large settlement with veteran class-action law firm Milberg, Weiss, Bershad, Hynes & Lerach, which is representing the UC system, and then have to come back and deal with Enron’s creditors separately.