Andersen & Co.

Worked on Pooh Case During Shredding at Disney

by Joe Shea
(AR) -- Arthur Andersen & Co., the accounting ir! that o"ersa# the shredding o $nron
Cor%oration records, #as hired as the outside accounting e&%ert in the 'ong-running Winnie
the Pooh roya'ties case and #orked on it at the Wa't Disney Co. ro! ())* to at 'east ())+, a
%eriod #hen thousands o %ages o docu!ents re'ated to the case #ere destroyed in "io'ation
o a court order, ,he A!erican Re%orter has 'earned.
,he ir! a%%eared at !ore than a do-en court hearings as the studio.s accounting
re%resentati"e during that ti!e, re'iab'e sources c'ose to the case no# say. ,he u'' e&tent o
Andersen.s in"o'"e!ent in the case !ay ne"er be kno#n because Disney has asked the court
to kee% under sea' about /00 docu!ents ro! the *1-"o'u!e case i'e that !ost'y re'ect
accounting acti"ity.
,he Wa't Disney Co., #hich had %ro!ised a co!!ent 2riday, did not res%ond.
3os Ange'es Su%erior Court Judge $rnest 4. 5iroshige has 'e"ied se"ere e"idence sanctions
against Disney or destroying *0 bo&es o docu!ents, inc'uding one !arked 6Winnie the
Pooh, 'ega' %rob'e!s6 that #ere shredded in ())+. ,he 7udge a'so 'e"ied !onetary da!ages
o 8)0,000 against Disney in that case.
,he studio cou'd ace !ore sanctions or shredding hundreds o other bo&es and thousands o
%ages o Pooh-re'ated shi%%ing docu!ents o its 5ong 9ong !anuacturing ar!. A secret
in7unction ordering Disney to sto% shredding #as handed do#n by Su%erior Court Judge
$rnest 5iroshige in June /00( and on'y ca!e to 'ight #hen the case #as unsea'ed in January.
At the c'ose o a conerence ca'' or in"estors ,hursday, Disney Chair!an 4ichae' $isner
announced that the ir! #ou'd no 'onger use its auditors, Price#aterhouseCoo%ers, as outside
accounting consu'tants but !ade no !ention o its 'ong re'ationshi% #ith Arthur Andersen &
Co.
During the ti!e that an Arthur Andersen %artner su%er"ised the 'engthy accounting
%rocedures in the disco"ery %rocess or the case, at 'east /10 bo&es o docu!ents at Disney.s
Canasa ,rading subsidiary #ere destroyed by Disney shredders, court records sho#.
,he %artner, Chris Paskatch, did not res%ond at Arthur Andersen & Co..s oices in 3os
Ange'es. John A. Dono"an, the attorney re%resenting Disney in acounting as%ects o the case,
a'so did not return a %hone ca'' re:uesting co!!ent. Dono"an heads West Coast 'itigation or
the nation.s 'argest 'a# ir!, Skadden, Ar%s, S'ate, 4eagher & 2'o!.
2'orida 'icensing ir! Ste%hen S'esinger ;nc., #hich i'ed suit against the studio or a''eged'y
cheating it o hundreds o !i''ions in roya'ties, c'ai!ed in court %a%ers re'eased 'ast !onth
that an e&a!ination o re!aining Canasa docu!ents by S'esinger attorney $'isabeth 4oriarty
contained e&tensi"e !anuacturing, distribution, 'icensing and roya'ty inor!ation about
Winnie the Pooh !erchandise Canasa !ade or sa'e at Disney the!e %arks and stores in the
<nited States and $uro%e.
;t is unc'ear #hether Disney retained Andersen & Co. through ())), #hen Skadden, Ar%s, the
studio.s 'a# ir! at the ti!e, abru%t'y :uit as Disney.s counse' ater #orking !any years on
the case. ,hat unusua' turn o e"ents ca!e about ater S'esinger.s attorneys sought to ha"e
Dono"an ca''ed to testiy against the studio about the docu!ent destruction. Rather than
testiy against their c'ient, Skadden, Ar%s #ithdre# ro! the case, #hich has to be one o the
!ost 'ucrati"e e"er. 4ore than (( 'a# ir!s and ha' a do-en 7udges ha"e been e!%'oyed in
the case, #hich #as co!%'ete'y under sea' unti' Jan. (( o this year.
S'esinger ac:uired a #ide range o rights to the %o%u'ar chi'den.s character ro! =ritish
author A.A. 4i'ne in ()>0 and ()>/. 4erri'' 3ynch !edia ana'yst Jessica Rei Cohen to'd
2orbes 4aga-ine in 4arch /000 that she esti!ated that the Pooh characters generate 8?
bi''ion a year or Disney, about a ourth o its re"enue. ,hat !oney cou'd go e'se#here i the
S'esingers are %er!itted by a 7ury to ter!inate the contract.
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5E33FWEED, 2eb. *, /00/ -- Arthur Andersen & Co., the accounting ir! that o"ersa# the
shredding o $nron Cor%oration records, #as hired as the outside accounting e&%ert in the
'ong-running Winnie the Pooh roya'ties case and #orked on it at the Wa't Disney Co. ro!
())* to at 'east ())+, a %eriod #hen thousands o %ages o docu!ents re'ated to the case
#ere destroyed in "io'ation o a court order, ,he A!erican Re%orter has 'earned.
6; do understand there #as so!eone ro! Arthur Andersen in"o'"ed #ith Disney on the
Winnie ,he Pooh case,6 said =onnie $skena-i, a 'a#yer or heirs o 'icensing %ioneer
Ste%ehen S'esinger, #ho ac:uired co!!ercia' rights to Winnie the Pooh ro! =ritish author
A.A. 4i'ne in ()>0 and ()>/. $skena-i said the Andersen in"o'"e!ent ca!e beore she and
5o''y#ood su%er'a#yer =ert 2ie'ds #ere hired by the S'esingers in /000.
;n act, the A!erican Re%orter has 'earned, Disney #as re%resented by Arthur Andersen &
Co. at !ore than a do-en court hearings during the !ost intensi"e %eriod o docu!ent
destruction in the case.
;t is not c'ear #hether Andersen e!%'oyees ordered or %artici%ated in the destruction, #hich
Disney says ca!e about as a nor!a' unction o its record retention %rogra!.
5o#e"er, in a second ru'ing on sanctions against Disney handed do#n 'ast August, the 7udge
in the case !ade note o the act that Disney had concea'ed the e&istence o so!e records
ro! the court unti' the day they #ere destroyed.
Disney.s attorney in the case, #ho #as a'so hired in /000, #ou'd not direct'y say that
Andersen #as Disney.s outside auditor, but ca''ed the re%ort 6co!%'ete'y irres%onsib'e.6
6,he #ho'e idea o trying to !ake a connection bet#een Arthur Andersen and docu!ent
destruction is 'ike so!ething out o a !o"ie scri%t,6 said Danie' Petroce''i, the high-%roi'e
'a#yer #ho #on but ne"er co''ected a 8>1 !i''ion 7udg!ent ro! E.J. Si!%son, the or!er
ootba'' great charged and ac:uitted o !urdering Bico'e =ro#n Si!%son and Ron Co'd!an
in a sensationa' ())* doub'e s'aying.
=oth attorneys :uestioned #hether there are any docu!ents a"ai'ab'e to the %ub'ic in the case
i'e that #ou'd su%%ort the re%ort.
Dirtua''y a'' the docu!ents re'ated to the accounting issues in the case re!ain under sea' at
Disney.s re:uest. ,he case #as or!a''y unsea'ed on Dec. (0, but case i'es #ere not turned
o"er to re%orters unti' Jan. (+, and those sti'' under sea' a#ait a hearing on A%ri' ( beore a
decision #i'' be !ade about o%ening the!.
;ronica''y, the e&istence o a re'ationshi% bet#een the accounting ir!, Disney and the Pooh
case has been !ethodica''y erased ro! a'' %ub'ic records o the case e&ce%t one - Disney.s
(1-%age 'ist o docu!ents it #ants to kee% su%%ressed ater the court.s Dec. (0 order
unsea'ing the case i'e, #hich #as a&ed to AR.s oices in 5o''y#ood and !ai'ed to
A!erican Re%orter attorney A'e&ander J. Peta'e ater this %ub'ication 7oined in the successu'
3os Ange'es ,i!es !otion to get the case unsea'ed.
;n that docu!ent, a cry%tic !ention is !ade o a 62a& Co"er 3etter to Janet Dhi''on ro!
Christo%her Paskach, #ith attached Roya'ty Audit Progra!.6
Whi'e other igures in the 'ist o so!e (1* docu!ents occur re%eated'y, Paskach occurs 7ust
once. Bothing e'se in the *1 "o'u!es o 'ega' %a%er#ork that ha"e been !ade %ub'ic
identiies hi!, but his unusua' na!e and a%%arent accounting background :uick'y 'ed to his
identiication as a 'ongti!e Arthur Andersen G Co. %artner #ho had #orked on the Disney
case or years.
,he ir! a%%eared at !ore than a do-en court hearings as the studio.s accounting
re%resentati"e during that ti!e, re'iab'e sources c'ose to the case no# say.
,he u'' e&tent o Andersen.s in"o'"e!ent in the case !ay ne"er be kno#n because Disney
has asked the court to kee% under sea' the docu!ents that describe accounting acti"ity.
;n the high-%roi'e $nron case, the Andersen ir! ad!itted it shredded thousands o %ages o
docu!ents re'ated to the energy trader.s outside %artnershi%s, and Arthur Andersen %artner
Da"id =. Duncan c'ai!ed the %rotection o the 2ith A!end!ent to a"oid discussing the
ir!.s ro'e in $nron.s co''a%se.
Andersen has a'so been i!%'icated in other :uestionab'e accounting cases, inc'uding the
co''a%se o ;r"ine, Ca'i.-based 3inco'n Sa"ings in ()+), #hen a'ong #ith 'a#yers, ad"isors
and t#o other =ig H accounting ir!s it #as orced to %ay !ore than 8/>1 !i''ion to bank
custo!ers "icti!i-ed by a Pon-i sche!e in"o'"ing high-interest - but uninsured - in"est!ent
certiicates.
3os Ange'es Su%erior Court Judge $rnest 4. 5iroshige has 'e"ied se"ere e"idence sanctions
against Disney or destroying *0 bo&es o docu!ents, inc'uding one !arked 6Winnie the
Pooh, 'ega' %rob'e!s6 that #ereshredded in ())+.
,he 7udge a'so 'e"ied !onetary da!ages o 8)0,000 against Disney in that case.
,he studio cou'd ace !ore sanctions or shredding hundreds oother bo&es and thousands o
%ages o Pooh-re'ated shi%%ing docu!ents oits 5ong 9ong !anuacturing ar!.
A secret in7unction ordering Disney to sto% shredding #as handed do#n by Su%erior Court
Judge $rnest 5iroshige in June /00( and on'y ca!e to 'ight #hen the case #as unsea'ed in
January.
At the c'ose o a conerence ca'' or in"estors ,hursday, Disney Chair!an 4ichae' $isner
announced that the ir! #ou'd no 'onger use its outside auditors, Price#aterhouseCoo%ers, as
outside consu'tants but !ade no !ention o the 'ong re'ationshi% #ith Arthur Andersen & Co.
During the ti!e that an Arthur Andersen %artner identiied as Chris Paskach ser"ed as
Disney.s outside auditor during so!e o the 'engthy accounting %rocedures in the disco"ery
%rocess or the case, at 'east />0 bo&es o docu!ents at Disney.s Canasa ,rading subsidiary
#ere destroyed by Disney shredders, court records sho#.
Paskach, the Andersen %artner, did not res%ond to a "oice!ai' !essage 'et or hi! at Arthur
Andersen & Co..s oices in 3os Ange'es, a'though a secretary conir!ed that he #as in his
oice. 5e #as not in his oice 4onday !orning, the secretary said.
John A. Dono"an, the attorney re%resenting Disney in accounting as%ects o the case, a'so did
not return a %hone ca'' on 2riday or 4onday !orning re:uesting co!!ent. Dono"an heads
West Coast 'itigation or the nation.s 'argest 'a# ir!, Skadden, Ar%s, S'ate, 4eagher &
2'o!.
With Andersen ad!itting that its auditors had taken %art in shredding inancia' docu!ents at
$nron and another ir!, its in"o'"e!ent in another high-%roi'e case in"o'"ing shredding is
high'y sensiti"e and %otentia''y de"astating to Disney.s a'ready-#eakened case.
2'orida 'icensing ir! Ste%hen S'esinger ;nc., #hich i'ed suit against the studio or a''eged'y
cheating it o hundreds o !i''ions in roya'ties, c'ai!ed in court %a%ers re'eased 'ast !onth
that an e&a!ination o re!aining Canasa docu!ents by S'esinger attorney $'isabeth 4oriarty
re"ea'ed e&tensi"e !anuacturing, distribution, 'icensing and roya'ty inor!ation about
Winnie the Pooh !erchandise Canasa !ade or sa'e at Disney the!e %arks and stores in the
<nited States and $uro%e.
;t is unc'ear #hether Disney retained Andersen & Co. through ())), #hen Skadden, Ar%s, the
studio.s 'a# ir! at the ti!e, abru%t'y :uit as Disney.s counse' ater #orking !any years on
the case. ,hat unusua' turn o e"ents ca!e about ater S'esinger.s attorneys sought to ha"e
Dono"an ca''ed to testiy against the studio about the docu!ent destruction.
Rather than testiy against their c'ient, Skadden, Ar%s #ithdre# ro! the case, #hich has to
be one o the !ost 'ucrati"e e"er. 4ore than (( 'a# ir!s and ha' a do-en 7udges ha"e been
e!%'oyed in the case, #hich #as co!%'ete'y under sea' unti' Jan. (( o this year.
Disney, no# re%resented by Petroce''i o E.4e'"eny & 4yers, has i'ed a !otion #ith the
Ca'iornia Su%re!e Court seeking %re-tria' re"ie# o the sanctions denied by an a%%ea''ate
court in Dece!ber.
S'esinger is re%resented by $skena-i and a!ed entertain!ent attorney =ert 2ie'ds, o
Creenberg, C'usker, 2ie'ds, C'a!an, 4achtinger & 9inse''a. 2ie'ds re%resented or!er
Disney %resident Jerey 9at-enberg in the 'atter.s high'y-%ub'ici-ed suit against the studio
or %ro!ised %artici%ation in !otion %icture re"enues and #on se"era' hundred !i''ion
do''ars ro! co!%any in a sett'e!ent.
,he Pooh case (=C0//>?1), #hich is seeking hundreds o !i''ions in da!ages and the right
to ter!inate the Pooh contract #ith Disney, #as i'ed by the #ido# and daughter o 'icensing
%ioneer Ste%hen S'esinger on 2eb. /H, ())(. ,hey ha"e not co!!ented on the case in recent
years.
S'esinger ac:uired a #ide range o rights to the %o%u'ar chi'den.s character ro! =ritish
author A.A. 4i'ne in ()>0 and ()>/, and 'icensed the rights to Disney in ()?(. ,hat contract
#as renegotiated in ()+> ater a 8H10,000 sett'e!ent #as %aid by the studio or %ast-due
roya'ties. 4erri'' 3ynch !edia ana'yst Jessica Rei Cohen to'd 2orbes 4aga-ine in 4arch
/000 that she esti!ated that the Pooh characters generate 8? bi''ion a year or Disney, about a
ourth o its re"enue. ,hat !oney cou'd go e'se#here i the S'esingers are %er!itted by a 7ury
to ter!inate the contract.
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