In a letter, the accounting firm’s lawyers told state officials and other parties in the settlement that the Andersen-owned insurance carrier, Professional Services Insurance Co. of Hamilton, Bermuda, would be unable to make the payment due April 15, according to the Wall Street Journal. The letter said the carrier was ‘unable to approve or pay claims at this time due to its financial position.’
Andersen also released a statement saying its attorneys were evaluating the situation to determine what to do next.
Andersen had agreed in early March to the accord, which would have settled all pending litigation related to its audits of the foundation, including two other pending civil lawsuits. Attorneys for the foundation’s bankruptcy trust received a letter Thursday from Andersen representatives notifying them of the snag, according to the WSJ, citing a person familiar with the matter.
Back to the Beginning
Arizona Attorney General Janet Napolitano says she will seek ‘severe penalties’ against Andersen, including the revocation of Andersen’s registration to practice accountancy and the licenses of the CPAs involved in Andersen’s audit of the Baptist Foundation. Napolitano also said her office will reopen a criminal investigation of three Andersen accountants.
Separately, Maricopa County Superior Court Judge Edward Burke set a new trial date of April 29 in the trust’s case against Andersen.
The agreement, reached just days before the case was scheduled to go to trial, was the second-largest litigation settlement ever by an accounting firm over its work for an audit client, and the largest-ever by Andersen. Court documents cited claims that investors lost an estimated $590 million as a result of the foundation’s 1999 collapse – itself the largest by a nonprofit group in US history.
The Baptist Foundation (BFA) offered high interest rates on retirement accounts and put its money in real estate. It claimed to be assisting in the funding of Baptist ministries that, combined with a promise of above-market returns, drew in some 13,000 investors. However, Arizona regulators said it was operating a Ponzi scheme — using money from new investors to make payments to old investors.
Senior managers at the BFA allegedly used transactions with companies run by current and former foundation executives to hide investment losses. One reason the scheme lasted as long as it did, the lawsuits had alleged, was that Andersen continued to certify the foundation’s financial statements.
Andersen was hired to advise the BFA on its vulnerability to IRS scrutiny, having audited the Foundation’s returns from 1984 though 1997, according to the Washington Post. According to the suit, an Andersen tax specialist spotted potential trouble, which she thought could affect Andersen’s audit opinion. But, in an action eerily similar to recent accusations in the Enron case, an Andersen partner allegedly told her to delete her written warning.