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U.S. Indicts Arthur Andersen for Obstruction of Justice

According to the indictment, the accounting firm undertook an “unparalleled initiative to shred physical documentation and delete computer files” pertaining to audits and other activities Andersen did for Enron.

Deputy Attorney General Larry Thompson announced the indictment Thursday.

Employees “were instructed by Andersen partners and others to destroy immediately documentation relating to Enron and told to work overtime if necessary to accomplish the destruction,” the indictment read in part.

Lawyers for the embattled accounting firm blasted the move, calling it “a gross abuse of governmental power” and warning the criminal indictment would amount to a “death sentence” for the company. In a letter to the Department of Justice, Andersen also said it would impede reforms within the accounting industry.

“The death of the firm would have a severe adverse impact on the accounting profession generally,” Andersen’s letter said. “It would kill any possibility that the sweeping reforms proposed by Chairman Volcker will be implemented — and with it any chance that the accounting profession will undergo much-needed changes.”

Experts said that the criminal indictment would further hurt a company already staggering from a series of civil lawsuits.

“When a company has such a cloud over its head, then obviously this provides a great disincentive for clients to stay with them,” Itzhak Sharav, an accounting professor at Columbia University, told Reuters. “Top clients have already been leaving Andersen in droves. A criminal indictment will cause others to leave, and many of their top people will probably be leaving as well.”

The impact of the indictment came even before the Department of Justice made its official announcement.

Deloitte Touche Tohmatsu and Ernst & Young both announced Thursday that they would end talks to buy some of the assets of Andersen.

“After reviewing the possibility of combining with Andersen, Ernst & Young has concluded that as long as Enron and other Andersen litigation matters are unresolved, it is not in the best interests of our people, clients, and our firm to pursue such a combination,” Ernst & Young said in a statement Thursday.

Deloitte also decided the firm was “unable to continue to the next stage of discussions due to Andersen’s unresolved litigation and legal issues.”

The 89-year-old firm has 2,300 audit clients and employs nearly 30,000 people in the United States. The smallest of the “Big Five” accounting firms, Andersen had been viewed as one of the best accounting and consulting firms until Enron’s collapse.

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