While most Americans are checking their NCAA basketball pools this week, I’m taking book on Arthur Andersen. The “over-under” on the embattled accounting firm is 5 p.m. Friday. I’m betting they’ll be belly-up by that time.
For those who have been following college basketball and have missed the great political/business playoffs of the last several months, aka Enron, Arthur Andersen was the toppled energy trader’s accounting firm. Arthur Anderson last week was indicted for its role in covering up the true dire financial condition of the company.
The reason I know that it’s just a matter of days until Arthur Andersen declares bankruptcy or just breaks apart at its seams is because Arthur Andersen is really just like many other U.S. businesses in trouble. The pattern is unmistakable.
Arthur Andersen’s Houston office apparently engaged in wholesale shredding of Enron documents in the last weeks before Enron’s failure. Critics have charged the accounting firm with having a cozy relationship with its client, perhaps stemming from a million a month billing arrangement for “consulting” services.
I have to admit, that qualifies as “cozy” in my book.
Almost immediately after the revelations of document shredding and failing to report the true condition of Enron and its countless offshore and off-the-books partnerships surfaced, Arthur Anderson vigorously defended itself by . . . (and I’m not making this up) offering hundreds of millions in dollars to settle the matter. When the lawyers reading this stop laughing, we can all realize that not surprisingly, the myriad of plaintiff’s lawyers told AA, “No thanks.” So what did Arthur Anderson’s brilliant legal team do? They offered hundreds of millions more. When that didn’t work they tried the next illogical move, merger talks. Those broke down last week, also not surprisingly given the threat of, and now reality of, indictment.
In the law business, indictment is not a good thing unless you happen to work for the Justice Department. As many have found out in the past, you don’t want the Justice Department angry at you. Justice (as all proper insiders call it) is the 2,000 pound gorilla of the legal world. And Justice is really upset with Arthur Andersen.
It seems that AA has not exactly been the gold standard among large accounting firms of late. They also were the accountants for the Motorola and Sunbeam scandals of the recent past. These accounting cases are small compared to Enron, but AA apparently did nothing to put safeguards in place to prevent future scandals and showed no remorse for their part in the earlier troubles.
Justice does not like no remorse.
Justice has had enough of AA, as the indictment shows.
The indictment also means that AA partners all over the nation spent Saturday and Sunday courting their best and largest local customers, trying to get commitments from them to jump the AA ship. As small groups of AA partners can convince clients to go with them to new and better accounting places, announcements of defections should start as early as today.
From Omaha to Albany, new, small accounting firms are going to spring up this week like daffodils along the roadway.
I guarantee there are hundreds, if not thousands, of “behind-closed-door” meetings going on at AA offices all over this fine land:
“Joe can bring Acme, Inc., and Alice says she’s in with the CFO at DatGen.”
Phones are ringing off the hook at local real estate management companies that have been secretly hired to scout out space for new accounting ventures. Business lawyers are poised to file corporate documents with Secretary of State offices for new accounting firms.
I have no doubt that last weekend saw many an argument over which accountant’s names make the letterhead and in what order.
So pull out your NCAA (That’s “New Counting of American Accountants”) bracket and keep score. The games are about to begin.
— Mitch Margo is an attorney in St. Louis and a member of The Levison Group, which provides columns for this newspaper.
He may be reached at