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A federal judge on Wednesday scheduled Arthur Andersen’s obstruction of justice trial for May 6, though accounting experts questioned if the embattled firm would survive long enough to get its day in court. U.S. District Judge Melinda Harmon of the Souther District of Texas told Andersen she intends to complete the trial by May 29. To provide more days for trial, the Houston-based judge said she may hold rare Saturday sessions. The judge met with the parties shortly after Eugene Frauenheim, managing partner of Andersen’s Houston office, pleaded innocent on behalf of the entire partnership at a hearing before Magistrate Judge Calvin Botley. “Our clients are nervous, our people are nervous — we have to get this behind us,” Frauenheim said. The Department of Justice unveiled the one-count indictment last week charging Andersen with shredding tons of Enron Corp.-related documents despite knowing of an ongoing Securities and Exchange Commission investigation. Andersen has said the indictment is “riddled with factual and legal errors,” and it argues that there is no evidence of a firmwide effort to destroy documents. Legal experts said Andersen scored a big victory by securing an early trial date. Federal law gives the government at least 70 days to prepare for trial, said Stanley Twardy, a former U.S. Attorney for Connecticut who is now a partner at Day, Berry & Howard in Stamford, Conn. In this case, the Department of Justice gets 47 days. “This will make the government work faster than it normally works,” Twardy said. “It will be a hectic seven weeks.” The compressed schedule gives Andersen a slight advantage, he said, because the government will not have time to search for new witnesses or extensively re-interview other witnesses. “They are stuck with the cards in their hand,” Twardy said. “The question is whether that is enough to trump Andersen’s hand.” The strength of the government’s case may not matter, some experts contend. They said Andersen is losing clients so quickly that the partnership is likely to fail before May 6. “It does not look good to me, given the accelerated rate that they are losing clients,” said Robert Prentice, an accounting professor at the University of Texas at Austin. “If I was at Andersen, I would be very worried that the firm would not survive until then.” The best indication that the exodus of clients imperils the firm was Andersen’s decision Tuesday to halve the amount it is offering to settle class actions arising from the Enron bankruptcy, he said. Audit clients will see this as an indication of the firm’s financial weakness and instability, which will cause even more to defect, he said. “This is a snowball effect,” Prentice said. Bert Ely, principal of the Alexandria, Va.-based Ely & Co. Inc. consulting firm, said the shortened trial schedule is not nearly short enough. Thousands of public companies hold annual meetings in March and April, he said. The uncertainty over Andersen’s future may cause these firms to drop the accounting giant, he said. “This could not happen at a worse time for them,” Ely said. Andersen employees have not yet conceded the fight. About 500 workers from the Houston office demonstrated outside the federal courthouse against the prosecution. The firm also took out advertisements in several papers castigating the government’s prosecution. Management also reportedly is prepared to slash up to a quarter of its work force to mitigate the loss of clients. This has some observers arguing that the early trial date gives Andersen at least a slim chance of survival, whereas a later date would have cemented its fate. Robert Bricker, a professor at the Weatherhead School of Management at Case Western University, said Andersen could emerge with newfound strength if the firm’s management retains enough staff and clients through the trial. That’s because the reforms Andersen has pledged to implement would make it the only major firm that does not provide consulting services. As such, it could quickly regain respect in corporate boardrooms, he said. Yet Bricker conceded this scenario is a long shot. Andersen partners at local offices already are talking with rival firms about wholesale defections of auditors and the clients they service, he said. Others contend the trial would doom Andersen. Mark Cheffers, chief executive of Accounting Malpractice.com, said a trial would create so much negative publicity that the firm’s public company clients would leave in droves. Better to plead guilty, pay a financial penalty and try to reorganize as a smaller firm while it still has clients, he said. Copyright (c)2002 TDD, LLC. All rights reserved.

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