| waving the white flag (Reuters)
New York, Aug. 28: Enron shareholders announced Tuesday that they had reached a tentative $ 40 million settlement with Andersen Worldwide, the umbrella group for overseas accounting firms affiliated with Arthur Andersen.
While the settlement, which still requires the approval of some of the parties involved and of a federal judge, absolves Andersen Worldwide of liability, it would not affect the lawsuits filed against Arthur Andersen, which audited Enron.
“We regard this settlement as only a first step in obtaining recovery for the class, and will continue to pursue damages from the remaining defendants,” James E. Holst, general counsel to the University of California, said Tuesday in a statement.
The University of California is the lead plaintiff in securities class-action suits filed against Andersen Worldwide, as well as various Wall Street firms and banks.
Negotiations are also close to completion on a separate, $ 20 million settlement by Andersen Worldwide of claims by Enron’s creditors, according to people involved in the talks.
Patrick Dorton, a spokesman for Arthur Andersen, declined to comment on the Andersen Worldwide settlements.
Tuesday’s announcement came as Arthur Andersen prepared to end its accounting of public companies this week, as the firm said it would after it was convicted in June of obstruction of justice. Andersen’s fiscal year ends August 31.
The firm has lost thousands of employees since it was indicted in March, and many of the partners who remain will probably become employees, according to partners at the firm. Those partners would no longer draw a share of the profits and would lose any investment in the firm, capital that has already been wiped out, the partners said.
As employees, they can draw a salary and perhaps insulate themselves further from liabilities, said Leslie D. Corwin, a partner at the law firm of Greenberg Traurig in New York.
“The biggest concern of anyone who’s a partner there now is liability,” Corwin said.
Fear of liability played a role in pressing Andersen Worldwide to settle shareholder claims, said people involved in the negotiations.
Andersen Worldwide’s overseas partnerships have joined rival accounting firms, but partners have worried that without settlements, lawsuits against Andersen Worldwide could follow them to their new employer.
The pair of settlements would remove the threat of litigation looming over Andersen Worldwide’s partnerships in other countries.
“It sounds like a great deal for Andersen,” said Stephen P. Younger, a lawyer at Patterson, Belknap, Webb & Tyler in New York. “You do a settlement like this, it gives you immunity” against Enron-related claims, and frees Andersen Worldwide to focus on winding down.
There are complex intercompany ties among the partnerships and those obligations have to be sorted out, said partners at Arthur Andersen. Not only do partnerships in different countries owe money to each other, they will all have to finance the settlement, because Andersen Worldwide does not have enough cash to do so.
The settlement is not large given that shareholders claim they lost billions as a result of Enron's collapse.
But it is a large amount for overseas firms to pay, said Dennis R. Beresford, a former chairman of the Financial Accounting Standards Board who now teaches accounting at the University of Georgia.
“There have been lawsuits settled overseas,” Beresford said, “but for the most part, significant accounting litigation is a US phenomenon.”
Arthur Andersen still faces a wave of litigation in federal court in Houston.