Andersen Tax Partners Leave As Trial Begins

by Mike Godfrey, Tax-News.com, Washington

09 May 2002

As the US Justice Department's case against Arthur Andersen gathered steam in Washington yesterday, the firm announced that a substantial number of its US tax partners and professionals are joining Deloitte & Touche, and that it had closed a transaction with Ernst & Young regarding the audit and tax practices of the Pittsburgh office.

The Deloitte & Touche announcement follows the successful conclusion of an agreement for approximately 2,000 people, including almost 200 partners to join the firm immediately in many offices across the US. The Ernst & Young transaction serves as a final agreement for approximately 80 people, including 6 partners to join Ernst & Young's tax and audit practices in Pittsburgh.

The firm said the moves were consistent with the firm's plan to move forward as a smaller and different organisation. The firm says it will separate parts of its business not consistent with a reform model including substantial portions of its consulting and tax business, will engage in transactions involving portions of geographic audit and tax practices hardest hit by the public company loss, and will evaluate options for geographies with more of a middle-market client base.

In Washington, a Justice Department prosecutor alleged that a small group of partners at the firm orchestrated a cover-up campaign to keep sensitive information about its former client, Enron Corporation, out of the hands of government investigators.

Mr Matt Friedrich told a jury on the first day of Andersen's obstruction of justice trial that the partners persuaded Andersen employees to erase emails and destroy files relating to the energy-trader in order 'to keep them out of the hands of law enforcement'. Mr Friedrich, a member of the Justice Department's Enron Task Force who was laying out the government's case against the troubled accountancy, said the document shredding was ordered by a 'smart' group of people who left few tracks.

Mr Friedrich said the government - whose star witness is former Andersen partner Mr David Duncan - would show there was a top-down effort to suppress vital information relating to Andersen's accounting of Enron as that firm's questionable accounting practices were revealed in a firestorm of publicity in late 2001.

But Andersen's chief defence counsel, Mr Rusty Hardin, ridiculed the government's theory, describing the alleged cover-up as 'the most incredibly incompetent conspiracy you can imagine'.

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