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Andersen Worldwide Reaches $40 Million Settlement

BY Admin  August 28, 2002 at 4:58 PM EST

The settlement marks the first deal stemming from a $25 billion class action lawsuit filed on behalf of Enron investors led by the University of California, and another suit filed by former employees in the wake of the failed energy company’s swift and unexpected collapse last December.

The settlement deal, which still must be approved by a federal judge in Houston, exonerates Andersen Worldwide of any liability, though it does not affect the lawsuits filed against U.S.-based Arthur Andersen, which audited Enron for nearly 16 years until it was fired in January.

Arthur Andersen, which was convicted in June of obstruction of justice for shredding Enron-related documents, was not involved in the new settlement and lawsuits are still pending against the firm. Based in Chicago, Arthur Andersen operates autonomously from the umbrella organization, Andersen Worldwide said in a press release.

The $40 million settlement includes the $15 million in costs associated with the lawsuit, but not attorney fees in the ongoing litigation seeking damages for Enron shareholders.

“This first settlement recovers millions of dollars for the class and demonstrates that even relatively minor actors may face substantial liability to Enron’s investors,” Bill Lerach, the lead plaintiff’s attorney in the lawsuit, said.

“We regard this settlement as only a first step in obtaining recovery for the class and will continue to pursue damages from the remaining defendants,” including Arthur Andersen LLP, said James Holst, general counsel for the University of California, which was an investor in Enron stock.

Lawyers for the plaintiffs and Arthur Andersen initially discussed a deal for $750 million to drop claims against the auditing company. But, as Arthur Andersen’s legal and financial troubles deepened, the deal fell apart and negotiations with Andersen Worldwide and its international affiliates started shortly afterwards, the university said.

Enron shareholders, who estimated they lost some $25 billion in the energy giant’s collapse, filed a class action lawsuit when the Texas-based energy trader filed for bankrupt last December. The University of California board became the lead plaintiff in the class-action suit after the school reported losing $144.9 million from the purchase of Enron shares for pension and endowment funds.

Former Enron employees will share in the settlement, though the exact division of money between investors and Enron employees would be decided later, the university said.

The university added that Enron Corp. and its creditors weren’t part of the settlement deal and will not receive a portion of the $40 million.

Meanwhile, Enron’s creditors may reach a separate agreement to settle claims brought in a federal bankruptcy court, according to sources familiar with the matter. Under terms of that deal, Andersen Worldwide would agree to pay $20 million to creditors of the troubled energy giant.

The news of the settlement deals come as Arthur Andersen prepares to officially terminate its audit services of public companies this week. The Chicago-based firm has laid off most of its 26,000 U.S. employees and closed offices around the country.

U.S. District Judge Melinda Harmon in Houston, who presided over the class action suit, will sentence Arthur Andersen LLP on Oct. 17.