Commentary, 3/4, 2002

Published Dec 12, 2003
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Shredding the Responsibility
The puzzle of piecing together the responsibility of the various players leading up to the Enron collapse is still going on. The Enron trial is expected to start in Houston in early May. Enron shareholders have recently filed an expanded lawsuit against some US top financial institutions claiming they knowingly participated in a scheme to defraud them. The claim is related to deals aimed at hiding the dire straits of Enron’s finances.

According to a draft of the complaint, cited by the New York Times, a group of nine financial institutions repeatedly structured deals to funnel millions of dollars in cash to Enron to allow transactions that improperly increased Enron’s profits and hid debt. In many of those transactions, the complaint says, senior bank officers themselves secretly invested in the partnerships, receiving quick, outsized profits for participating in deals that disguised Enron’s true financial health. The firms named in the lawsuit are J. P. Morgan Chase, Citigroup, Credit Suisse First Boston, Canadian Imperial Bank of Commerce, Merrill Lynch, Bank of America, Barclays Bank, Deutsche Bank and Lehman Brothers.

The Enron shareholders have already sued Enron, its executives and directors, in addition to its former auditor, Chicago-based Arthur Andersen.

Lawyers from Arthur Andersen have been in secret talks with the authorities to try to avoid being put on trial along with Enron. No matter the outcome of those talks, it remains a loose-loose situation for Anderson. The client base is shrinking at fast pace. One of the latest, in a long line of exits of clients from Andersen, is a Connecticut Indian Tribe, the Mohegan Tribe.

Thousands have now lost their jobs at the Andersen. World-wide the company employs more than 80,000 people, almost 30,000 of them in the US and Canada. Of course, North America is where the company is hardest hit, and 7,000 employees have lost their jobs so far. But Anderson seems to have been doing their best to spread the Enron problem throughout its organization, having employees shredding Enron related papers in several offices, including their London base.

Journalists at a London press conference recently burst out laughing when an Andersen executive claimed they had been shredding Enron papers at their London office simply because they wanted to keep the office tidy! In the strictly hierarchical structure of Andersen the blame seems to be in the opposite end of the line than with the cleaning lady. We all knew whitewashing money is illegal. Following Andersen’s shredding practice tidying the office might also become dubious business.

Arthur Andersen is about to become history - a notorious history that will haunt the accounting business for years to come. US authorities are working on new legislation concerning the close ties that have obviously existed between Andersen and its client. Merger talks with any of the other ‘big five’ have effectively been stopped by Andersen’s potentially huge liability costs related to Enron’s bankruptcy. Shortly after a search for candidates to take over Andersen in the US, Deloitte Touche Tohmatsu and Ernst & Young announced separately that they weren’t interested in buying any of the company’s assets.

Later on, however, interest has risen. Andersen has announced a tentative agreement with Deloitte & Touche for a ‘significant’’ number of its U.S. tax partners and professionals to join the rival firm. Careful legal work has gone into finding ways of taking over profitable clients while avoiding any liabilities.

But the US courts are obstructing such a transfer. American National Insurance and several other insurers have asked for an injunction to stop Andersen from selling assets or transferring them to foreign subsidiaries or affiliates. The motion also seeks to bar Andersen from releasing partners and employees who quit the firm from noncompete agreements, which prohibit former workers from taking clients with them if they join other auditing firms.

After the indictment Andersen said the Justice Department had issued a ‘death penalty’ against the firm. To outsiders it looks like Anderson took its death from its executives’ love for shredding responsibility as well as shredding documents.

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