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Andersen talks still on, but deals look less attractive

Critically wounded auditor Andersen negotiated possible civil and criminal settlements on Tuesday, but some involved in the continuing talks said the auditor's worsening condition is making deals seem less and less attractive.

Sources close to both sets of talks said they ended without final resolution on Tuesday. Andersen and the US Justice Department have been talking about settling a felony obstruction of justice charge, leveled against the firm for destroying Enron-related documents, for several weeks now.

But the balance in the talks with Justice could be shifting because Andersen is losing so many clients - about 200 so far - and its partners are seeking a clearer picture of what its post-settlement existence might be like, sources said. Andersen has always called the indictment, which was unsealed March 14, a death sentence that would destroy it.

Enron's massive collapse into the largest US bankruptcy in history on December 2 sucked Andersen, its longtime auditor, into a vortex of litigation and government investigation surrounding the Houston firm and its murky finances.

If the conditions imposed by Justice on Andersen hamper its plans to survive as an audit-only firm - or if it cannot survive long enough to make it - then a deal is unlikely, they said.

"If we can keep some life breathing in this thing, then maybe it is worth going forward," one source said. "But if the burden of working with the government is so onerous, then maybe not."

Sources close to the case have said one deal on the table would require Andersen to cooperate with prosecutors investigating Enron Corp's collapse for as long as three years or face being re-charged with the same crime. Any deal would require an admission of some type of criminal liability.

Were government-imposed conditions to get too burdensome, the source said, it is possible that Andersen could just plead guilty to the obstruction charge - a strategy that says there is nothing left to lose.

Former top Enron partner David Duncan's guilty to plea to a near-identical charge on April 9 severely hampered Andersen's ability to defend itself, since Duncan's senior status in the firm means his acts can be attributed to Andersen itself.

DECISIONS INTERTWINED

While focus has remained on progress in each set of negotiations separately, sources said the decisions must be made together.

"If you are a partner, I don't know how this is something you peel one layer at a time," said one legal source. "What's the point of doing this if you haven't settled with the plaintiffs and the (US Securities and Exchange Commission)?"

To that end, the Chicago-based auditor met in New York with plaintiff's lawyers in a major class action suit that it got swept up in because of its role as fallen energy giant Enron Corp's accountant. SEC negotiations have gone on in tandem.

Those talks, conducted under the supervision of a court-appointed mediator, are said to have produced a proposal whereby Andersen would pay about $300 million. But no major progress was made on the final details holding it up, the sources said.

Andersen's failing health has already had ill effects for other opponents. Earlier this year, Andersen offered about $750 million to settle the civil cases, but was turned down. The amount has dwindled to less than half that, with much of it coming from insurers.

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