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Large US Accounting Firm Being Tainted by Enron Collapse - 2002-01-16

The collapse of Texas-based energy company Enron could have serious repercussions for a company based in Chicago, America's third most populous city. The accounting firm Arthur Andersen was employed to audit Enron's financial books. Federal investigators are looking into Andersen's role in the largest corporate bankruptcy case in U.S. history.

When Houston-based Enron quickly collapsed in late 2001 many of its investors were left with little or no money in their retirement accounts. The United States Securities and Exchange Commission is investigating whether company managers committed any wrongdoing in connection with that collapse.

The government is also looking into the role accounting firm Arthur Andersen played at Enron. Andersen recently revealed that its auditors destroyed some Enron-related documents. U.S. Senator Joe Lieberman, whose Governmental Affairs Committee plans the first Senate hearings into the Enron matter January 24, wondered in a televised interview whether that amounts to an obstruction of justice.

"That is not for me to make a judgment on now, obviously I do not know enough about it," he said. "But, if this memo was what it looks like, I am afraid the folks at Arthur Andersen could be on the other end of an indictment before this is over."

Former head of the U.S. Securities and Exchange Commission, and current law professor at Northwestern University in Chicago, David Ruder, says if Andersen ordered the papers destroyed after the SEC began its investigation, it could face criminal charges. He expects the federal investigation to reveal how much Andersen auditors knew about Enron's rapidly deteriorating condition last year.

"The thing that is very bothersome about Andersen and Enron is whether Enron, on one hand, was pulling the wool over [misleading] Andersen's eyes, or whether Andersen did not ask enough tough questions to know what was going on," he said.

On Tuesday, Andersen announced it had fired the firm's lead auditor at Enron. It is also putting three other auditors on leave, is replacing the management of its office in Houston, where Enron is based.

Enron accounts for only a tiny portion Arthur Andersen's revenues, but its role in the Enron collapse could undermine its reputation among clients and potential clients and result in lost business.

In Arthur Andersen's hometown of Chicago, one member of the City Council is already calling for the firm to be barred from doing accounting work for the city for three years because of the Enron mess. Andersen is not currently under contract with Chicago, and the city's mayor, Richard M. Daley, it should not be prevented from bidding for work in the future.

"They have 5,000 employees [in Chicago] and I am very proud of Arthur Andersen," he said. "They have done work in the past [for the city] and I am very proud of it. This is a different situation. To tell them that we do not need their 5,000 employees, that is a sad comment."

The collapse of Enron is having a big effect on one other Chicago company. The Northern Trust Bank last year wrote off more than $20 million in Enron loans it now considers uncollectable. That caused an 18 percent drop in the bank's profits in the fourth quarter of 2001. Northern Trust investors responded by selling off company stock, cutting the trust's market value by $500 million.