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170. Andersen participated in the fraud in order to continue earning
lucrative fees for the auditing and other services that it provided for WorldCom.
Based on Andersen’s long history of knowing about the red flags, the lack of
support for transactions, and WorldCom’s aggressiveness in reporting its financial
statements, Andersen had knowledge and/or reckless disregard of the fraud.
171. Under professional standards, Andersen had a duty to withdraw from
the engagement upon discovering of the fraud and inform the Audit Committee of
the fraud, but instead, it participated in and encouraged the fraud. In the 8-K
WorldCom filed with the SEC on May 14, 2002, disclosing the change of auditors,
Arthur Andersen confirmed that there had been no disagreements between
Andersen and WorldCom on any matters of accounting principles or practices,
financial statement disclosure, or auditing scope of procedures. WorldCom
changed auditors because of its decision; Andersen did not want to be removed
from the engagement.
E. Andersen Violated Its Professional Obligations
172. As a result of Andersen’s violation of its obligations, and its knowing
participation in the scheme to defraud, WorldCom’s shareholders, the public, and
the SEC were provided materially false information concerning WorldCom’s
revenues and earnings.
173. The auditor’s standard unqualified report states that the financial
statements present fairly, in all material respects, an entity’s financial position,
results of operations, and cash flows in conformity with GAAP. An auditor may
only express this opinion when it has formed such an opinion on the basis on an
audit performed in accordance with GAAS. (AU 508.07). Andersen, knew, or
except for its deliberate disregard of facts, would have known that i) it had not
performed its audit of WorldCom’s financial statements for the years ended 1994 -
2001 in compliance with GAAS; ii) it never should have issued “unqualified”
audit reports on WorldCom’s financial statements for year end 1994-2001; and iii)
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COMPLAINT