PHOENIX (AP) – Arthur Andersen, the accounting firm at the center of the Enron debacle, agreed Friday to pay $217 million to settle lawsuits filed after the 1999 collapse of an Arizona company accused of bilking elderly investors.
- Paul Wong
- Charles Bowsher, left, former Comptroller General of the U.S., talks with P. Roy Vagelos, retired chairman and chief executive of Merck & Co., Inc., at a news conference in New York last week. Bowsher and Vagelos were appointed to an independent oversight
The settlement resolves a case brought by a bankruptcy trust for investors in the failed Baptist Foundation of Arizona.
State regulators said the nonprofit foundation, founded in 1948 to raise money for Southern Baptist causes, wound up using more than 120 shell companies to raise cash. Three foundation officials later pleaded guilty to defrauding investors.
More than 13,000 people around the country, many of them elderly Baptists, lost nearly $570 million in the alleged Ponzi scheme.
The trust had sought $155 million in compensatory damages from Andersen, which handled the foundation’s books.
The settlement also resolves a class-action lawsuit by former foundation investors, a civil suit by state regulators and disciplinary proceedings brought by the Arizona Board of Accountancy.
“These investors, many of whom are elderly, trusted the misleading financial statements audited by Andersen,” Attorney General Janet Napolitano said. “This agreement will allow Baptist Foundation victims to at least recover most of their investment.”
Arthur Andersen said the firm had made a business decision to settle the cases without admitting or denying wrongdoing.
“This settlement is an important step in building confidence in our firm,” a company statement said.
Andersen is under fire for its handling of Enron’s books and the shredding of documents related to the failed energy trading giant. Enron collapsed into bankruptcy in December in an accounting scandal.
The state’s lawsuit alleged that Andersen prepared financial statements for the Arizona foundation that concealed huge losses which should have been flagged to alert investors.
Warnings were ignored or inadequately investigated, allowing senior managers of the foundation to mislead the board of directors and to engage in fraud at the expense of investors, the suit said.
The trust said Andersen must come up with the money by April 15. It said that after litigation costs and attorneys fees, investors will recover about $185 million through the settlement.
“It achieves our goal of getting significant money back in the victims’ hands soon, rather than after a lengthy trial and years of appeals that carried some significant risks,” said Sean Coffey, the trust’s lead attorney.
Forrest Bomar, a 73-year-old retiree from Palestine, Texas, who lost $236,000 in the collapse, said he was told he and his wife would receive about 70 percent of their initial investment.
“I’m grateful because this will eventually amount to more than we might have seen, had we lived long enough, if the case had gone through the court process,” Bomar said.