NEW YORK (CNNfn) - The Securities and Exchange Commission said Tuesday that Arthur Andersen LLP's audits of Waste Management Inc.'s financial statements were false and misleading, and that the accounting firm agreed to pay $7 million to settle the case. The agency said it was the largest civil penalty ever assessed against a Big Five accounting firm.|
The SEC said it found financial statements that were issued as "clean" opinions by Andersen overstated Waste Management's pre-tax income by more than $1 billion for the years 1993 to 1996. Andersen neither admitted nor denied wrongdoing.
"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," said Richard H. Walker, SEC's Director of Enforcement, in a statement. "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."
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"The settlement allows the firm and its partners to close a very difficult chapter and move on," said Terry E. Hatchett, Andersen North America Managing Partner, in a statement. "We made a business decision to put the matter – and the uncertainty of litigation – behind us."
"The allegations underlying the settlement are limited to one client and reflect work that is in some cases more than seven years old," Hatchett said.
Three Andersen partners, without admitting or denying wrongdoing, agreed to an anti-fraud injunction, settled allegations of federal securities law and antifraud provision violations. They agreed to an anti-fraud injunction, a civil penalty and a bar from appearing or practicing in front of the SEC as an accountant, with the possibility of reinstatement.
A fourth partner, with no admission or denial, settled administrative proceedings regarding improper professional conduct and agreed to a bar with the possibility of reinstatement.
The existence of a probe into Arthur Andersen's handling of Waste Management's financial statements came to light in April 1998, when the Houston-based trash hauler, fresh from adopting more conservative accounting practices that increased truck-depreciation and other income-statement expenses, revealed the inquiry in an SEC filing.