KeySpan Under the Gun

CFO, CEO being investigated for insider trading. Also: did Kenneth Lay cash out before Enron went belly up? Plus: Andersen's weekend loss is Deloitte's gain.

Since Friday, more than a half dozen public companies reported they have dumped the indicted company as their auditor. And the big winner of those defections? Ernst & Young.

At least four of the companies that fired Andersen over the past three days have replaced the embattled auditor with E&Y. In fact, recreational vehicle-maker Fleetwood Enterprises Inc. noted it had hired E&Y after using Andersen’s services since the Eisenhower Administration (1955, to be exact).

Starwood Hotels & Resorts Worldwide Inc., Valero and Genuity Inc. also named Ernst & Young as their independent auditor to replace Andersen. “The decision to change auditors followed a long and thoughtful review of various alternatives,” Starwood management said in a press release, echoing the statements from other Andersen bolters.

In a press release Friday, Genuity, a provider of Internet-infrastructure services, said “recent events” at Andersen have created the need to “engage another independent firm that can meet our global needs.”

At least three other companies that dumped Andersen switched to Deloitte & Touche.

They include Advance Auto Parts, Inc., the nation’s second largest auto parts chain, KeySpan Corp (see above), and the Houston Exploration Co., which is 67 percent owned by KeySpan.

“The decision to change independent public accountants was not the result of any disagreement between the company and Arthur Andersen on any matter of accounting principles, practices or financial disclosure,” KeySpan management stated in the same proxy filing that also revealed the SEC investigation of a number of the company’s top executives.

And Atrion Corp., which makes medical products, said it replaced Andersen with Grant Thornton LLP.

Other Accounting Probes

  • New World Restaurant Group, Inc., best known for its Manhattan Bagel stores, said the SEC is conducting an informal investigation into matters announced by the company on April 3.

As reported, New World announced on April 3 the resignation of Chairman Ramin Kamfar and the termination of Chief Financial Officer Jerold Novack. The company also noted that it was delaying the filing of the company’s 10-K for fiscal 2001.

Novack, 45, joined New World as vice president of finance in June 1994. He was appointed CFO in January 1999.

New World said that it is cooperating fully with the investigation.

Meanwhile, management at Reliant Resources Inc. said it is cooperating fully with the SEC in an informal inquiry into the company’s restatement of second and third quarter earnings.

On Feb. 5, the company reported the restatements would increase earnings for the second and third quarters by $100 million to $130 million, as it recognized profits in 2001 that it had expected to record in 2002 and 2003. The restatement stemmed from a reassessment of how the company accounted for derivative instruments.

Elsewhere: R.R. Donnelley & Sons Co. said it settled a dispute with the Internal Revenue Service over the deductibility of interest on loans secured by corporate owned life insurance (COLI) policies. The settlement calls for the company to pay the IRS a portion of taxes on all prior deductions plus interest. The company also surrendered various life insurance policies.


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