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Andersen legal wrangling headed for crunch time

Wounded auditor Andersen and its opponents in the civil and criminal cases against it are nearing critical junctures in their negotiations, where the possible deals may be at risk, sources said on Wednesday.

Sources said talks between the accounting firm and the US Justice Department have slowed as Andersen starts to think its ailing financial health makes the deal on the table less tenable.

And other legal sources said a second day of negotiations in a major class action suit stemming from Enron Corp's collapse ended without a deal.

Those talks, conducted in New York under the supervision of a court-appointed mediator, began to break up after beginning with what some called a hopeful note on Wednesday. It was too early to say whether or not the talks were off completely, the sources said. Lead plaintiff's lawyer Bill Lerach left the discussions on Wednesday afternoon, they said.

The Justice negotiations to settle a felony obstruction of justice charge, described as fluid, are getting to a point where a deal must emerge soon or all bets may be off, the sources said.

"Everybody's talking, in the sense that there is lots of back and forth going on. That doesn't mean that we're heading toward anything," said one source close to Andersen.

A Justice Department spokesman declined to comment.

Andersen for weeks has been trying to settle an obstruction of justice charge to which it has pleaded not guilty, and is set to answer in a trial on May 6.

The Justice Department, in an indictment unsealed March 14, charged Andersen with destroying records related to its audits of fallen energy trader Enron, which were sought by government investigators.

A published report has said a deal was expected to be announced in Washington on Wednesday, but that appeared unlikely, the sources said late in the day. Andersen has said, since the report was issued on Monday, that announcements of a completed deal were premature.

SIMULTANEOUS DEALS SOUGHT

The Chicago-based firm wants simultaneous settlements with the Justice Department, the US Securities and Exchange Commission and the plaintiff's lawyers suing it in the Enron class action suit.

"They almost all, in a sense, have to be like dominoes that line up, and they all fall at once or they don't," a legal source said.

Andersen's settlement talks with the US Securities and Exchange Commission are on hold while the agency waits to see how the criminal case plays out, sources familiar with those discussions said.

Earlier reports indicated the SEC and Justice settlements were proceeding on a parallel path, but sources said that was not the case. The two agencies have not met with the auditor's representatives at the same time, they said.

"Unless there is a press conference, I can't imagine them being in the same room with one another. Given the kind of charge it is ... they occasionally talk, but I don't sense that there is coordination between them," one source said.

Andersen's remaining partners want a clearer picture of what their post-settlement firm will look like. Knowing the conditions deals might impose on them is key to divining a piece of their future, which has been imperiled as nearly 200 clients thus far have dropped it, the sources said.

COOPERATION A BURDEN?

For example, the Justice deal has been said to require Andersen's cooperation in investigating Enron for as long as three years, which would require resources and personnel that might otherwise be earning money.

Such a deal would require Andersen's admission of culpability in exchange for a deferred prosecution that would allow prosecutors to charge the auditor again if it does not cooperate as promised.

Houston-based Enron's disintegration in a morass of murky financing wiped out billions in shareholder equity and led it to file the largest-ever US bankruptcy on December 2. That sucked Andersen into the legal vortex, but its precarious position worsened after it admitted some employees had shredded Enron-related documents sought by SEC investigators.

The April 9 guilty plea of David Duncan, the former top Andersen partner on the Enron account, to obstructing justice by destroying Enron documents made Andersen's criminal defense nearly impossible.

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