Former Fed Chairman Suspending Effort to Rescue, Revamp Andersen

Former Federal Reserve Chairman Paul A. Volcker said Friday that he was suspending efforts to save accounting firm Arthur Andersen but would continue to work toward industry reform.

Volcker’s efforts to rebuild Andersen as an audit-only practice received only tepid support from the firm’s partners, who have instead largely focused on figuring out how to move with their clients to rival companies.

Andersen has negotiated as many as 40 deals to sell pieces of its business to rivals. People familiar with Andersen’s efforts to sell portions of its business said these deals, crafted initially as nonbinding agreements, will start to be converted into definitive agreements next week.

The major accounting firms are involved in the negotiations, including the other members of the Big Five, KPMG, Deloitte & Touche, Ernst & Young and PricewaterhouseCoopers.

All of the deals are contingent on developing a mechanism that would shield the buyers from Andersen’s legal liabilities.

Also Friday, a federal judge denied a bid by retired Andersen partners to stop the accounting firm from shedding partners and employees, meaning the retirees will have to ask an arbitrator to preserve their pensions.

In Chicago, U.S. District Judge Robert Gettleman threw out the retirees’ request for an injunction to stop what their lawyer called the “fire sale” at Andersen, which the pensioners--numbering 500 to 700--said endangered their monthly payments that average about $3,500.

Tainted by its role as an advisor and auditor for energy firm Enron Corp., the accounting firm has lost more than 300 clients in recent months and is in danger of going out of business. On Friday, it lost Marriott International Inc., Mentor Graphics Corp., Illinois Tool Works Inc. and several other clients.

Andersen tapped Volcker in early February to head a internal oversight board to help overhaul the way the company operated as criticism mounted over its work for Enron.

Volcker issued a statement Friday that the board would continue to look at reforms of the accounting industry but was in “suspension as far as Andersen is concerned.”

The 74-year-old retired central bank chief offered to take control of Andersen in March after the firm was indicted on a criminal obstruction-of-justice charge for destroying documents sought in the federal probe of Enron’s accounting.

But the bulk of Andersen’s 1,700 partners failed to actively support Volcker and his plan to transform the company into an audit-oriented firm. Moreover, his efforts were hampered by fighting within the firm.

“It has become clear that there are many factions within Andersen with different agendas trying to cut their own deals, but the question of who in fact is ultimately approving all of these deals has become quite cloudy,” said accounting industry consultant Allan Koltin.

“It is beginning to appear that dominant partners with substantial books of business can pretty well dictate what they want to see happen with their practices or offices,” Koltin said.

This week, a court-appointed mediator declared an impasse in the efforts to settle the civil litigation after Enron plaintiffs and creditors failed to agree on how to split a $300-million offer from Andersen.

A last-ditch effort to bring the Justice Department back to the negotiating table after weeks of fruitless discussions about a deferred prosecution deal failed last week. The criminal trial is scheduled to begin Monday in Houston.

Andersen spokesman Patrick Dorton said the firm is moving ahead with plans to create a smaller firm that focuses on auditing and tax preparation work, but declined to comment on Volcker’s action.

Reuters was used in compiling this report.