RAY SUAREZ: After almost three weeks of negotiations, accounting company Arthur Andersen and the Justice Department called off settlement talks yesterday. The company now faces a May 6 trial date on obstruction of justice charges. Andersen has been under legal scrutiny for its role in the collapse of energy giant Enron, a former Andersen client.
Joining me now is Kurt Eichenwald, a reporter for The New York Times. Was there still a lot of back- and-forth in these negotiations or had a final deal begun to take shape, one that was offered by the Justice Department and then a response demanded from Andersen?
KURT EICHENWALD: Well, to a degree what happened here is they built the ship and had an argument over what kind of varnish to use on the deck. Really, you had two sides that had different imperatives. The government needed to get this negotiation over with. They have a trial in two weeks. It was already on an expedited schedule. They need to prepare for it. They can't be negotiating a settlement and getting ready for a trial at the same time. So they put a deadline on it. They said they wanted an answer by yesterday morning.
Andersen has a different problem. Andersen is not a company like General Motors. It doesn't have a chairman and a board that can simply make a decision and move on. It's a partnership with thousands of people who are all owners, who all want to have their input, and ultimately it's a little bit like herding cats. I mean, they just had... did not have the ability to get the kind of quick answers that the government needed. So the breakdown... while there were issues that still needed to be negotiated from Andersen's side, the breakdown really was one of two different imperatives: The government wanted a resolution and Andersen needed more time to get all its partners lined up and to make sure that, you know, every jot and tiddle was at the way they wanted it.
RAY SUAREZ: What do you know about what was in the Justice Department offer and would it have allowed Arthur Andersen to stay in business?
KURT EICHENWALD: Well, the second question is more of an economic question, which really goes to, would the firm continue to maintain the client base it still has? I think so. The offer was actually rather good. It was what's called a deferred prosecution agreement and under that, the government would use its indictment that has already been handed up, but would defer the prosecution. In exchange, Andersen, at a court hearing, would acknowledge that it had engaged in wrongdoing in the destruction of documents related to Enron. That acknowledge is just shy of a guilty plea. There's not a guilty plea that's entered. Instead what happens is a judge puts off the prosecution of the indictment for months, years, usually around three years. During that time, if Andersen violates the terms of what would effectively be probation, the admission can then be used against them to try the underlying indictment.
So effectively Andersen would be able to, if it behaved itself, would be able to walk away from the indictment, have it ultimately dismissed, never have a guilty plea, never have a verdict against it. The government would have gotten its acknowledgment of wrongdoing, and would have been then able to turn its attention to pursuing potential defendants in the Enron collapse. That now is going to be postponed. Now you have these two sides that are really in the form of a death match right now.
RAY SUAREZ: When Andersen's indictment was first announced, the company engaged in a fierce counterattack. Has the admission of guilt by one of its auditors, Duncan, change the legal landscape for Andersen and what it's able to do once it does go to trial.
KURT EICHENWALD: Duncan's guilty plea changed everything. Prior to that, Andersen's strategy was very clear. They said it a thousand times: There was no crime here. People did destroy documents. It was not with the intent to obstruct an official investigation, which is what's required for there to be a crime. Once Duncan stood up and said, "Yes, I destroyed the documents. Yes, I did it with the intent to obstruct an official inquiry," there no longer was an argument that there was not a crime here. Now the argument shifts.
The argument that Andersen has left is, "Well, maybe Duncan committed a crime, but should the actions of this one individual be assigned to the entire firm?" Now the government is going to be making an argument that there was a form of what's called a collective intent, that effectively there was enough information throughout the firm that the firm knew what was going on. It's sort of a strange legal argument. It's been used before, but there are also....
RAY SUAREZ: I'm sorry. We talked a little bit about why Arthur Andersen might want to avoid going to trial. With this waning number of days left until May 6, does the federal government also want to avoid a trial?
KURT EICHENWALD: It's hard to say. I mean, prosecutors always want to avoid a trial. It's, you know, a trial is for everybody a very iffy position. Somebody is going to win; somebody is going to lose. That's why there are always settlements. Effectively, a trial is the outcome of two sides that aren't able to make a resolution. So the government certainly had an interest in making a resolution. They certainly had an interest in getting on to Enron. That's why they were offering a deal that didn't involve, ultimately, a verdict of any sort. Now, they really don't have a choice. They can't just drop the indictment. When they had their discussion yesterday, the government presented its withdrawal of the offer-- and they officially withdrew the offer-- and they presented that as final -- that Andersen couldn't come back and seek the same deal later on.
RAY SUAREZ: Kurt Eichenwald in Dallas, thanks for joining us.
KURT EICHENWALD: Thanks for having me.