Arthur Andersen may seek bankruptcy

By Jef Feeley
Bloomberg News Service

CHICAGO — Arthur Andersen LLP has told lawyers suing the firm it's considering bankruptcy, people familiar with the matter said, as Enron Corp.'s former auditors seek to escape lawsuits that are discouraging potential buyers.

Ernst & Young LLP, the fourth-largest accounting firm, said yesterday it wouldn't pursue a combination with Andersen unless lawsuits over Enron's audits are resolved. Hours later, Deloitte & Touche LLP, the second-largest accounting firm, said it was ending merger talks with Andersen.

Filing for bankruptcy would put any suits against Andersen on hold and shield it from creditors. "A bankruptcy sale cleanses the business assets of all old sins," said Peter Chapman of Bankruptcy Creditors' Service, a newsletter publisher and research company.

Andersen's lawyers may be using the threat of Chapter 11 as a bargaining chip in negotiations with the Securities and Exchange Commission and lawyers for Enron shareholders and employees.

The Justice Department is investigating the firm for criminal violations, including possible obstruction of justice.