Listen to this article
Andersen, the global accounting firm that was destroyed in the Enron scandal, has reached a financial settlement over its auditing of WorldCom, the telecommunications company.
The settlement between inves tors and Andersen's defunct US business was announced on Monday. Its value was not disclosed and Andersen declined to comment on the matter on Monday. The settlement, which will be the subject of an approval hearing before a judge in New York on Tueday, should end the biggest securities fraud class-action lawsuit in US history.
Twelve former WorldCom directors and 17 investment banks that acted as underwriters for the company have agreed to pay more than $6bn (€4.6bn, £3bn).
WorldCom filed for bankruptcy in 2002 after revealing an $11bn accounting fraud, and Bernie Ebbers, former chief executive, was convicted of securities fraud last month. He is due to be sentenced in June.
Andersen was once the world's biggest accounting firm, with revenues of more than $9bn in 2001 and 85,000 employees in member businesses worldwide. Today Andersen's US business does no auditing or consulting work, and has about 200 employees. Some of their work is believed to be focused on dealing with the business's liabilities and litigation.
Andersen's settlement in the WorldCom case ends a four-week trial in a New York federal court when a jury heard allegations that the accounting firm had overlooked evidence of fraud at the company, one of its most prized audit clients.
“That fraud could have stopped dead in its tracks if Arthur Andersen had been looking to do its job instead of looking to line its pockets,” Sean Coffey, lawyer for the New York State Common Retirement Fund, which has been the lead plaintiff in the class action lawsuit, told the jury.
The trial heard allegations that Andersen privately criticised WorldCom's practice of capitalising expenses, which was at the heart of the $11bn accounting fraud. Andersen argued it did not know WorldCom was capitalising expenses so as to boost profits.
“The WorldCom fraud was actively and quite cleverly concealed by WorldCom managers from the Andersen professionals,” said Eliot Lauer, lawyer for Andersen.
Andersen's global network of accounting businesses disintegrated after it admitted in January 2002 to shredding documents about Enron, the energy company. Audit clients began to desert Andersen, and its member businesses negotiated deals to defect to rival accounting firms.
In March 2002 Andersen's fate was sealed when it was indicted by the US Justice Department on obstruction of justice charges.
The following June a Houston jury found Andersen guilty of the obstruction of justice charges, but by then the accounting firm was already close to defunct.
Andersen's US business also faces a class-action lawsuit over its auditing at Enron.