A federal jury convicted Arthur Andersen of obstruction of justice for altering a smoking gun memo before turning it over to the SEC. Enron wanted to lie to the public by claiming its 3rd quarter 2001 losses were a one-time exception ("nonrecurring"). But Andersen's David Duncan told Enron that this lie was so egregious that the SEC would punish Enron. This dispute was documented in the smoking gun memo, but Andersen lawyer Nancy Temple scrubbed that section from the memo so the SEC would never see it. As a result of its conviction, Andersen "informed the government that it would cease auditing public companies as soon as the end of August, effectively ending the life of the 89-year-old firm." Will the remaining Big 4 accounting firms learn that crime doesn't pay? Don't hold your breath - the Republican Congress is blocking the only serious accounting reform bill, proposed by Paul Sarbanes (D-MD).

Trying desperately to postpone its self-destruction, Arthur Andersen agreed to sell its tax business to its competitor, Deloitte & Touche. Andersen's tax business generates 1/3 of its revenues, so it's like a person hacking off both legs to survive. Andersen will also lay off 1/3 of its auditing staff, the result of losing over 100 major clients. Andersen claims it has enough cash to survive until June, but that will be a medical miracle.

The NY Times reports, "A recent settlement by Andersen in a separate fraud case involving a former nonprofit client, the Baptist Foundation of Arizona, appeared to collapse. Andersen notified plaintiffs' lawyers and state officials by letter late Thursday that an offshore insurer partly owned by the accounting firm had refused to pay for the $217 million agreement, citing troubles with its own financial position... 'This is treachery of the highest order,' said John P. Coffey, lead trial lawyer for the BFA Liquidating Trust, which took over the assets and businesses of the Baptist Foundation. 'It's a second stab in the back to everyone who lost money.' Mr. Coffey said that in mediation talks, Andersen lawyers had described Professional Services as a company that was controlled by the firm and would follow through on whatever agreement was reached." Yeah right - just one more big lie by Andersen, whose executives deserve LONG prison terms.

One week ago, two judges overseeing lawsuits against Arthur Andersen by Enron's investors appointed a mediator. But "Andersen sent only one lawyer to the talks, and the lawyer was unable to answer questions about the firm's finances." So the mediator went to Andersen's HQ in Chicago, and apparently discovered Andersen is pretty much broke (although the NY Times won't quite say it). That means Enron's investors have no reason to settle, and will soon turn their fire to the pockets that appear to be deeper - Enron's law firm, Vinson & Elkins, and its banks.

CNN reports, "Joseph Berardino, the leader of Arthur Andersen, stepped down Tuesday, a casualty of the Justice Department's indictment of his firm in the aftermath of the Enron Corp. collapse... 'While my nature is to keep fighting to protect our people and our clients, the fact is that the improper shredding of documents took place on my watch -- and I believe it is now in the best interests of the firm for me to step down from the CEO position,' Berardino said... But some think that Berardino's resignation comes too late for Andersen. One accounting industry source said Berardino should have left months ago, when the investigation against Andersen was just gearing up." With Berardino gone, can Paul Volcker prevent Andersen's inevitable collapse? Don't bet on it...

Bu$h's conflict-ridden Injustice Department was willing to let Arrogant Andersen set the terms of its surrender, but even THAT wasn't good enough. So now Andersen has been criminally indicted for shredding, and clients are abandoning the swiftly sinking ship. "If you were sitting on the board of a public company, how could you justify either keeping Andersen as an auditor or taking them on as your new one?" asked law professor Kenneth N. Klee. The answer is simple - you couldn't. Andersen has already lost 6 of its 20 largest clients, and we predict most of the rest will quit within 2 weeks. And by then, Andersen will file for bankruptcy. Meanwhile, CT and NY may revoke Andersen's accounting license, FL has issued subpoenas, and the SEC may bar Andersen. Andersen's lawyers are screaming about prosecutorial misconduct - but if they had advised their client not to facilitate fraud and shred documents, they might have had a prayer of surviving Enron. Hasta luega, baby!

Former Federal Reserve chairman Paul Volcker may have "whipped" inflation in the 1970's, but that hardly makes him a deity endowed with the power to save Arthur Andersen from its own collusion in Enron's massive fraud. It was recently disclosed that Andersen's senior partners in its Chicago headquarters objected to the fraudulent practices of the Houston office as early as January 2001, but did nothing to stop those practices. "The reason I got involved," Mr. Volcker said, "is that Andersen is in big trouble and they were looking for someone to sprinkle some holy water on them." Andersen needs much more than a sprinkle - the waters of the Red Sea could not wash away Andersen's accounting sins.