NEW YORK — After three high-profile blown audits last year, some are asking if Arthur Andersen — once the conscience of the accounting industry — has become its black sheep. The situation is of more than passing interest to 13,000 investors who lost money in the now defunct Baptist Foundation of Arizona, with the state of Arizona suing Andersen for $600 million on behalf of foundation investors.
Questions about the firm were raised in a Nov. 24 article in The New York Times after Enron, a Houston-based energy and commodities company, revealed it had overstated profits by $600 million because of “an accounting error” overlooked in Andersen-certified audits. That was followed by two civil fraud complaints filed against Andersen by the Securities and Exchange Commission.
The suit filed by the state of Arizona claims Andersen ignored red flags and issued clean audits, making it possible for Baptist Foundation officers to defraud investors. Eight former foundation officials were indicted last May on criminal charges. Three of them pleaded guilty to lesser crimes in exchange for turning state’s evidence against the others.
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