Date: 06-20-2001

Case Style: Securities and Exchange Commission v. Arthur Anderson

Case Number: Unknown

Judge: Unknown

Court: Securities and Exchange Commission

Plaintiff's Attorney: Unknown

Defendant's Attorney: Unknown

Description: The Securities and Exchange Commission today brought settled enforcement actions against Arthur Andersen LLP and four of its current or former partners in connection with Andersen's audits of the annual financial statements of Waste Management, Inc. for the years 1992 through 1996. Those financial statements, on which Andersen issued unqualified or "clean" opinions, overstated Waste Management's pre-tax income by more than $1 billion. As alleged in the Commission's complaint and found in a related Commission order, Andersen knowingly or recklessly issued materially false and misleading audit reports on Waste Management's annual financial statements. The audit reports falsely stated that the financial statements were presented fairly, in all material respects, in conformity with generally accepted accounting principles ("GAAP") and that Andersen's audits were conducted in accordance with generally accepted auditing standards ("GAAS").

Outcome: Andersen settled both a civil injunctive action charging violations of antifraud provisions of the federal securities laws, and related administrative proceedings finding that the firm had engaged in improper professional conduct. Without admitting or denying the allegations or findings, Andersen agreed to the first antifraud injunction in more than 20 years and largest-ever civil penalty -- of $7 million -- in an SEC enforcement action against a Big Five accounting firm. Andersen further agreed to be censured under the SEC's rules of practice.

Three Andersen partners also settled both the civil injunctive action, which also charges them with violations of antifraud provisions of the federal securities laws, and related administrative proceedings. Without admitting or denying the allegations, each agreed to the entry of an antifraud injunction to the payment of a civil penalty and to a bar from appearing or practicing before the Commission as an accountant -- one with the right to request reinstatement after five years and two with the right to request reinstatement after three years.

The fourth Andersen partner, a regional practice director, settled administrative proceedings finding that he had engaged in improper professional conduct. Without admitting or denying the findings, he also agreed to a bar from appearing or practicing before the Commission as an accountant, with the right to request reinstatement after one year.

Plaintiff's Experts: Unknown

Defendant's Experts: Unknown

Comments: According to Richard H. Walker, the SEC's Director of Enforcement, "Arthur Andersen and its partners failed to stand up to company management and thereby betrayed their ultimate allegiance to Waste Management's shareholders and the investing public. Given the positions held by these partners and the duration and gravity of the misconduct, the firm itself must be held responsible for the false and misleading audit reports issued in its name." Mr. Walker added: "Accountants play a critical role in providing access to our capital markets. We will not shy away from pursuing accountants and accounting firms when they fail to live up to their responsibilities to ensure the integrity of financial reporting process."