The Justice Department is in active plea negotiations with Andersen over the accounting firm's indictment on an obstruction of justice charge, sources said Thursday.
The talks follow a significant advance in the government's case Tuesday when Andersen's former top auditor handling Enron Corp. pleaded guilty to a similar charge for destroying documents sought in a federal probe of Enron's accounting practices.
Justice Department officials, however, refused to speculate on the future status of the closely watched case.
Meanwhile, Andersen has resumed negotiations in the last few days with the Securities and Exchange Commission about settling civil charges stemming from Enron's collapse, a source said. Critical issues remain outstanding, including how much, if any, money Andersen would pay in a fine, the source said. However, another person predicted that the talks would move forward quickly.
Earlier this year, the SEC sought to fine Andersen as much as $500 million. But Andersen's deteriorating financial condition means any payment now is likely to be significantly less than half that amount, a source said.
Law enforcement sources said the Justice Department wants Andersen to acknowledge responsibility for its conduct, cooperate in the Enron probe and enact meaningful reforms.
But "nothing has changed" in the status of those negotiations since lawyers for the two sides first met last Friday, an official said.
Andersen spokesman Patrick Dorton confirmed that negotiations were continuing but he declined to comment further.
Andersen, which is trying to reinvent itself as a smaller, audit-oriented accounting firm through a plan devised by former Federal Reserve Board Chairman Paul A. Volcker, has sought to get the government to dismiss or suspend its one-count indictment.
The firm wants to avoid admitting guilt because such a pleading would make it difficult to continue auditing public companies. Generally, a person or company that pleads guilty or is convicted of a felony is prohibited from practicing before the SEC and would be barred from conducting public company audits. They can only be reinstated by the commission after a special hearing. Andersen's trial is scheduled to start May 6.
Legal experts have speculated that any deal in the criminal case could resemble an agreement reached between the government and Prudential Securities in 1994.
Prudential admitted criminal wrongdoing in the sale of energy partnerships. It paid $330 million into a restitution fund to reimburse investors, but averted criminal indictment. The government agreed not to prosecute Prudential as long as it enacted reforms and did not engage in more criminal acts.
In such a "deferred prosecution," a defendant typically acknowledges wrongdoing and agrees to certain conditions, such as making financial restitution to victims. If the conditions are satisfied, the government either dismisses a charge or doesn't file a charge.
Deferred prosecutions are rare, especially for corporations. For individuals, they are normally applied only to first-time offenders and those who have committed less serious crimes.
However, its possible use in the Andersen case could be a way for the Justice Department to crack down on what it views as egregious wrongdoing without automatically putting the firm out of business, said Gary Lincenberg, a partner at Bird, Marella, Boxer & Wolpert in Century City.
"The Justice Department could [be thinking], 'This conduct is serious and we cannot just ignore it. We need to prosecute,'" Lincenberg said. "'At the same time, it's not our goal to bring down a Big 5 accounting firm.'"
Such a strategy looks to be one of the few courses left to Andersen after the guilty plea by its top Enron auditor, David B. Duncan, and his cooperation with the government, said Charlie Parker, an attorney who represents investors in lawsuits against Andersen and Enron's senior management.
Parker said it's unlikely there will be any significant movement in settlement talks for the civil litigation in the immediate future.
"There is no way at this point that Andersen can come up with enough money where the plaintiffs would be willing to do a settlement," Parker said.
Andersen has lost more than 150 major clients and hundreds of millions in revenue since Enron's bankruptcy filing.
The firm is trying to sell its tax business and if it survives it probably will be half the company that collected $4.3 billion in U.S. revenue last year.
It has offered $300 million to settle the civil litigation. Attorneys for Enron investors want to wait to see if they can force investment banks that were added to the class-action lawsuit Monday to the negotiating table, Parker said.
But Parker said that won't happen until after a judge rules on their expected motions asking to be dismissed from the case.
Times staff writer Eric Lichtblau in Washington contributed to this report.