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Volker Says Andersen Needs Miracles To Save Embattled Accounting Firm

By David S. Hilzenrath

and Carrie Johnson

Former Federal Reserve Chairman Paul Volcker, Arthur Andersen’s white knight in waiting, suggested Monday that it would take “miracles” to turn around the embattled accounting firm.

And a report that Andersen had hired a bankruptcy specialist to help its restructuring efforts added to speculation the firm was preparing to file for reorganization, some experts said. One month after offering to take charge of Andersen if the firm met four conditions, Volcker issued a statement saying, “At this point those conditions have not been met, but we can always look for miracles.”

Andersen hasn’t secured relief from the Justice Department’s criminal prosecution of the firm for shredding records of its work for Enron Corp. It hasn’t concluded the Securities and Exchange Commission’s investigation of its audits of Enron. It hasn’t settled -- or even limited liability in -- a class action shareholders’ lawsuit.

Volcker said weeks ago that one condition had been met -- a core of senior partners had committed to stay on and reform the firm. Now, Volcker’s group isn’t so sure and plans to ask Andersen for a status report, a source close to his reform effort said.

Andersen appointed Volcker in February to head an internal oversight board with broad authority to mandate changes in the firm’s personnel and business practices. At the time, the firm’s leadership hoped his prestige would help restore Andersen’s credibility. Volcker was eager to use Andersen as a vehicle to reform the audit business, which he saw as fraught with conflicts of interest.

In March, as he tried to prod Andersen and its adversaries to settle their differences, Volcker offered take on the more hands-on role of chairman of a new governing board -- if Andersen showed progress on each of its battle fronts.

Andersen spokesman Dan Hill said the firm is “committed to moving forward with the plan he (Volcker) outlined.” The plan calls for Andersen to divest much of its consulting business, which Volcker’s oversight board sees as incompatible with its auditing mission.

“There are a number of partners within Andersen that want to vigorously pursue Volcker’s plan ... and they’re doing the things internally they need to do to make that happen,” Hill said.

As part of that effort, Hill said, the New York turnaround firm Alvarez & Marsal “is working with Andersen to reform and restructure under the guiding principles of Volcker.” Hill said the outside firm, hired in late March, is helping the firm cut costs to adjust to a loss of revenue. Bryan Marsal is serving as Andersen’s “chief restructuring manager,” he added.