Will S&P suffer the fate of Arthur Andersen?
An esteemed columnist with the New York Times raises some provocative parallels between Standard & Poor's, which stands accused of criminally handing out false credit ratings, and Arthur Andersen, which was dealt the so-called death penalty when it was found guilty of fraudulent tax audits of Enron.
S&P wasn't hit with criminal charges, "But the allegations in the suit are reminiscent of what happened at Andersen, whose image had previously been of being the most independent, and most committed to quality accounting, of the major firms," the columnist notes.
He concludes that, "S.& P., like Andersen, issued opinions that turned out to be disastrously wrong. The firm needs to prove those were honestly held opinions, not ones motivated by greed. If the government can prove otherwise, S.& P.'s future may be bleak."
The notion that the government can put companies out of business via charges of fraud has been discussed ad nauseam since the Arthur Andersen death penalty. In this case, whether the company is at risk is a fair question. S&P faces a maximum penalty of $5 billion, which is pretty big chunk of change. Whether it could withstand that hit is unclear, but the firm shouldn't tempt fate on this. The best bet may be to settle, which would afford it more control over its losses and thus better allow it to move forward.
That may be galling to the board, especially when most would agree that the other main credit rating firms were running their practices in identical ways. But the survival of the company should be the top priority.
- here's the column
S&P to face civil charges