Hartford, Conn. (April 18, 2002) -- Connecticut Attorney General Richard Blumenthal filed a lawsuit Tuesday against former Enron auditor Arthur Andersen stemming from the loss of $220 million by the Connecticut Resources Recovery Authority in a failed deal with Enron.

The lawsuit, which charges Andersen with fraud, negligence, negligent misrepresentation, recklessness, and violations of the Connecticut Unfair Trade Practices Act, comes as the Justice Department is reportedly near a settlement with Andersen in the Enron case. Under the deal, federal prosecutors will defer criminal obstruction charges against Andersen, while requiring the firm to admit it knew employees were wrongfully destroying documents related to Enron's collapse.

Andersen officials could not be reached for comment on the allegations.

Blumenthal's complaint alleges that in its work for Enron, Andersen "failed to exercise the degree of care, skill, and competence, exercised by competent members of the accounting profession," resulting in the "serious misrepresentation" of the energy firm's financial condition. CRRA and its advisors "explicitly" relied on Andersen's wrongful representations in entering into the ill-fated transaction with Enron, according to the suit.

"Andersen knew or reasonably should have known that its acts and omissions created a high degree of probability that [the State and CRRA's customers] would be substantially harmed when Enron proved unable to meet its obligations," Blumenthal said in his complaint.

The lawsuit seeks punitive and actual damages, costs, and other legal and equitable relief. In a related matter, Blumenthal sent a letter to U.S. Attorney General John Ashcroft urging the Department of Justice to investigate Andersen's role in the collapse of First Connecticut Life Insurance Co. and Capital Benefit Plans Inc.

Blumenthal issued subpoenas to Arthur Andersen Tuesday seeking documents relating to the two failed companies. Blumenthal alleges Andersen aided and abetted the looting of the companies by its owners by filing deceptive financial statements and reports with the state Department of Insurance and others. He urged Ashcroft to ensure that any federal settlement with Andersen doesn't preempt or hinder state enforcement actions against Andersen.

--Electronic Accountant Newswire staff

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