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Andersen, US Justice Dept break off talks

Talks between critically wounded auditor Andersen and the US Justice Department broke off on Thursday without a deal on an obstruction of justice charge, casting greater doubt on the accounting firm's chances of surviving the fallout from the Enron collapse.

The breakdown is the second in as many days for Andersen, which has seen the simultaneous settlement the civil and criminal cases against it as its best chance of a fresh start. On Wednesday, negotiations to settle a major class action lawsuit filed by angry Enron Corp shareholders hit a snag, just as the criminal talks became mired in details.

"We are no longer in talks with (the Justice Department) and nothing is planned for the immediate future," Andersen lawyer Rusty Hardin said.

Justice Department spokesman Bryan Sierra said prosecutors are continuing to prepare for the pending trial, which is set for May 6 before US District Judge Melinda Harmon in Houston.

Andersen had worked hard for several weeks to settle the charge, which the government leveled in an indictment unsealed March 14. Prosecutors allege Andersen employees destroyed thousands of records of its audits of Enron, after learning that the US Securities and Exchange Commission was investigating the fallen energy trader.

Andersen, which wanted to avoid a guilty plea that would imperil its ability to practice accounting, said it is not ruling out future talks.

"We certainly are willing to continue having discussions on this matter," Andersen spokesman Patrick Dorton said.

Sources familiar with the talks said the government had set a deadline of Wednesday evening, but let it slide into Thursday morning. By the time talks ended both sides had been engaged in several rapid, intense exchanges of proposals during the final hours.

"Andersen has told the department they were not in a position to make a decision on a deal," a Justice Department official told reporters.

An Andersen source said the end of the talks was not acrimonious, and that it came because there just was not enough time left to decide on the last offer.

A POOR OMEN

The end of criminal talks was seen as a poor omen for Andersen's attempt to settle the civil suit. Two days of talks between the parties in New York, under the supervision of court-appointed mediator, ended on Wednesday after the parties could not reach agreement on the finer points of a $300 million settlement, sources said.

One plaintiff's lawyer said that Andersen's failure to reach a criminal deal means it has less of a pressing need to reach a civil settlement.

"The package from Andersen was always, 'We get the criminal side solved, then we can go forward. If we can go forward, then you guys can get your money," the lawyer said.

Andersen's decision not to reach a criminal deal may also signal that it sees a dissolution of its partnership and the continued sale of its various units as more palatable than life under the Justice Department's terms.

Andersen lawyers have suggested that the combined injuries to the firm, which has lost more than 200 clients since the Enron fiasco, on so many fronts has made such an outcome a possibility.

The criminal deal on the table, people involved in the talks said, would have involved Andersen accepting some criminal responsibility in exchange for a deferred prosecution -- a probation-like arrangement in which the auditor would have to meet certain conditions for a set period or else be recharged with the crime.

The deal also would have required Andersen to cooperate with prosecutors investigating Enron's collapse, which some Andersen lawyers have said would be a serious burden that could impair its ability to survive profitably after a settlement.

The government alleges that Andersen destroyed thousands of records from its audits of Enron, which filed for the largest bankruptcy ever in December amid questions over its accounting practices and off-the-books partnerships.

Andersen admitted destroying records in January and fired top Enron audit partner David Duncan, a decision that came back to haunt the firm. Duncan on April 9 pleaded guilty to obstruction of justice and agreed to cooperate with the government, severely impairing Andersen's ability to fight the charge.

Since Duncan was a senior partner, his acts can be legally attributed to the corporate entity itself - making his guilty plea a powerful arrow in the government's quiver.

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