Professionals shaken amid radical industry shift. (Trading Places--Accounting After Andersen).

Up until March 14, the crew at Arthur Andersen's local offices in Los Angeles had held together pretty well.

The Enron accounting scandal was a growing distraction, but Andersen's staff -- known for its fierce loyalty and workaholic tendencies -- had barreled through, confident the crisis would somehow blow over.

But then came the indictment, unsealed by the Justice Department in Washington, accusing the Big Five accounting firm of obstructing justice by destroying Enron-related documents.

"It was kind of like D-Day," said Virna Betti, a former Andersen tax manager now at Ernst & Young.

Partners stopped talking, and began closing their office doors. Newspapers became a better source of information than Andersen's leadership. The staff kept busy through tax season, but after that, chairs would sit empty. "You would hear negative talk from the partners: 'What are we going to do? Where do we go from here?'" she remembered.

What followed was a massive reshaping of the accounting industry, on a worldwide, national and local level. Within weeks, 40 percent of Andersen's clients had left the firm, mostly heading to the "Final Four" -- Ernst & Young, Deloitte & Touche, PricewaterhouseCoopers and KPMG.

Andersen partners, stripped of investments in the firm worth millions of dollars in some cases, hurried into negotiations to join other firms. Meanwhile, legislators and oversight bodies enacted new rules limiting the scope and service of the public accounting profession, and increasing its oversight.

By Aug. 31, when Arthur Andersen officially ceased practice as an accounting firm nationwide, 2,300 publicly held companies -- 156 in California -- had left as Andersen clients. Thousands of private companies switched firms as well, often following the Andersen partner to the new firm. Untold numbers of lives were disrupted in the process.

Of the more than 1,200 Andersen professionals based in Los Angeles, about half ended up at one of the remaining Big Four companies or their consulting counterparts. An undetermined number went to smaller firms and some are still looking. The Andersen partners who had the closest relationships with clients stood the best chance of landing with another Big Four firm.

Locally, Ernst & Young won more public-company clients than any of its competitors, according to data collected by Auditor-Trak, a service of Atlanta-based Strafford Publications. Deloitte & Touche picked up the most staff; aided by a national deal for Andersen's tax practice.

"It was a tragedy for Andersen and its people, but an extraordinarily unprecedented, and probably never to be repeated opportunity for the remaining Big Four," said Richard Ossoff, publisher of Auditor-Trak.

The Final Four wasted no time recruiting Andersen's best clients and its biggest rainmakers.

"The other firms are only interested in hiring you if you've got a book of business," said John Golisch, a former Andersen audit partner in Los Angeles who's now looking for work. He said the other firms weren't looking to acid skills or resources, only clients. "If you don't have a book of business they make it very clear they're not interested."

Negotiations took place on many levels, from worldwide to local, but after Andersen found no large-scale takers for its business -- and the legal liabilities that would inevitably follow -- it began to sell off its people.

"We engaged in a number of transactions that involved partners and people going to other firms. We received fair value for those transactions," said Patrick Dorton, an Andersen spokesman.

Final Four windfall

Nationally, the Final Four firms won the lion's share of Andersen's business, and their choice of staff. As many as 90 percent of the public companies that left Arthur Andersen still have the same audit partner, now working at a different firm, Ossoff said.

"It's this sort of massive reshuffling of the deck," he said.

Ernst & Young ended up hiring 120 former Andersen professionals in the region, including about 100 in the Los Angeles area, said Tony Anderson, managing partner of Ernst & Young's Pacific Southwest region. Key hires included partners John Nendick, in media and entertainment, and Tony Radaich, in high technology.

"We focused on the media and entertainment sector, we focused on technology, we focused on the retail distribution and manufacturing segment," said Anderson.

Ernst & Young also grabbed 31 of Andersen's 89 public-company clients in Southern California, including 13 in Los Angeles County, according to Auditor-Truk. Its A-list gains include Hilton Hotels Corp., Metro-Goldwyn-Mayer Inc., Univision Communications Inc. and the substantial local portion of Vivendi-Universal SA's business, which switched over through a lead partner in France.

In addition to Andersen's tax practice, Deloitte focused on media and entertainment, said Sharon Allen, managing partner, Pacific Southwest. Among the 260 professionals hired within Los Angeles County by Deloitte were entertainment consultants David Cutbill and Ron McNair; the leader of Andersen's regional tax practice, Dennis Krock; and the leader of its audit and assurance practice, Marshall Mathison.

KPMG picked up 40 Andersen clients in the state, including Levi Strauss & Co., TiVo and Occidental Petroleum Corp. Only four were in Los Angeles County, according to Auditor-Trak.

Legal concerns

KPMG officials declined to comment. But sources said local KPMG officials in a number of regions, including Los Angeles, sought to hire more Andersen partners than the firm's top brass would allow. These sources said KPMG limited the number of partners it would assume on a nationwide basis due to concerns about legal liabilities that could follow Andersen partners to other firms. According to these sources, that prevented Radaich, the technology industry partner who ended up going to Ernst & Young, from joining KPMG. Ernst & Young declined to make Radaich available for comment.

PricewaterhouseCoopers, traditionally a bastion in media and entertainment, gained 30 public company clients statewide, half of them in Southern California. Inquiries placed through a PricewaterhouseCoopers publicist weren't responded to.

Grant Thornton, a national accounting firm that handles public companies, hired 16 people locally, including an 11-member Business Risk Services team headed by Greg Pitzer, a former Andersen partner, according to Mark Bagaason, Southern California managing partner.

Within Andersen, the bidding for people came fast and furious.

Deloitte was the first firm in the door locally, conducting a heated interview, recruitment, due-diligence and offer period condensed into two weeks.

While Andersen employees were shocked by their firm's disbandment, they were further disturbed to find out they wouldn't all be going to the same place.

"One of the things I didn't expect was the complete Pangaea, the separation of everybody," said Betti, now a tax consulting manager at Ernst & Young.

Betti was interviewed by Deloitte on a Monday, given an offer that Wednesday, and asked to make a decision by Friday.

As a rule, accountants don't like to make rash decisions. But at this point, Betti had to make a call. Most of Betti's group from Andersen went to Deloitte & Touche and Deloitte was putting on pressure.

"I made it more like a business decision," she said. if Betti went to Deloitte as part of the larger deal, she figured, she probably wouldn't have much work to do for a while. At Ernst & Young, the Andersen partners were bringing clients with them.

"That was important to me, to have the security of going in and being needed," Betti said, who joined the firm in mid-May.

Others, such as Golisch, have lost the fruits of a lifetime of labor. A30-year veteran of Arthur Andersen, he was preparing for early retirement.

He chuckles as he tells his story, but below the surface, he admits to a more complicated set of feelings.

"You work for a company your whole life, it's a demanding job. You get well compensated but there's a reason you get well compensated," he said. "You've got all your plans for taking retirement, and all of the sudden, over the course of two months, you lose everything. And now you've got to completely start over at the age of 56."

His partner investment in Andersen was worth in the hundreds of thousands of dollars, Golisch said. His retirement plan, which is worth "multiples of that amount," is frozen and he expects to lose it as well.

Particularly frustrating, he said, is the inability to do anything about it. "There's no ability to hold anybody accountable," he said.

Golisch was in the process of transferring his clients to other Andersen partners when the storm hit. As a result, he didn't "own" the accounts that would make him an attractive recruit to the Final Four firms.

Golisch planned to travel in his retirement, perhaps go back to school or teach. Now he's looking for work, in a tight market, competing against people 20 years younger.

Even worse off are Andersen retirees, who are on notice that their monthly checks and benefits can be cut off at any moment, and younger partners, who owe against loans they took out to finance their partnership buy-in. Others left behind include non-professional support staff that for the most part weren't needed at the Final Four destinations.

Making adjustments

For the Andersen refugees, there's more than just new faces to get used to. There's a new climate, with rules that limit the number of ancillary services that the auditing firm can provide. Public company clients -- whose top executives must now sign off on financial statements -- have become more focused on internal controls and evaluating their outside accounting firm, both at the board and management level.

With all the remaining Big Four firms having either separated or in the process of separating off their consulting arms, the audit -- recently discounted to promote other services offered by accountants -- is gaining new importance. Audit fees are expected to rise by 10 percent, and non-Big Four firms are trying to find ways to capitalize.

"I view the Big Four as friendly, and continue to seek ways in which we can work with each other," said Scott Farb, partner in the Beverly Hills office of Rothstein Kass & Co., a mid-size national firm.

But the gains have been limited. Pyramid Oil Co., based in Bakersfield, selected Singer Lewak Greenbaum & Goldstein, a locally based firm that does public-company work.

"We needed somebody that specialized in oil and gas. We looked around and this was the only firm that could meet our needs," said Judy Canard, a secretary to Pyramid's chief financial officer, Lee Christiansen.

The Big Four, however, isn't willing to cede this market. The middle market, said Anderson, remains a "key focus" of Ernst & Young.

"We haven't picked up the kinds of clients that we thought we'd pick up," acknowledged David Swartz, managing partner of Good Swartz Brown & Berns in Los Angeles. "I'm hoping that maybe a year from now when the dust settles that we have some opportunities that we don't have at the present time?"

With so many shifts, many predict a shakeout. They note that in previous wholesale mergers of accounting staffs, there's been an aftermath in which clients and staff found their way to more comfortable situations.

"By the end of the year we'll have a better understanding of what we want to do," Swartz said. "Right now we haven't made any decisions. We're continuing on but we can't ignore what has happened."

Top Accounting Firms

                                  Revenues       SEC
Company/Location                (in millions)  Clients

1. PriceWaterhouseCoopers/N.Y.     $8,056.5     3,025
2. Deloitte & Touche/N.Y.           6,130       2,877
3. Ernst & Young/N.Y.               4,485       2,923
4. KPMG/Montvale, N.J.              3,171       1,808

Source: Public Accounting Report
Where Did All The Clients Go?

New Deloitte & Touche staffers, from Andersen and elsewhere, are setting
into their new home.

                                     Clients
Auditor                              Received

California (156)
 KPMG                                   40
 Ernst & Young                          36

 PricewaterhouseCoopers                 30

 Deloitte & Touche                      24

 Grant Thornton                          8
 BDO Seidman                             7
 Singer Lewak Greenbaum & Goldstein      3
 Others/selection pending                8

Southern California (89)
 Ernst & Young                          31
 KPMG                                   16

 PricewaterhouseCoopers                 15
 Deloitte & Touche                      12
 BDO Seidman                             4
 Grant Thornton                          3
 Singer Lewak Greenbaum & Goldstein      3
 Others/selection pending                5

Los Angeles County (40)
 Ernst & Young                          13

 PricewaterhouseCoopers                  8

 Deloitte & Touche                       6
 KPMG                                    4
 BDO Seidman                             2
 Singer Lewak Greenbaum & Goldstein      2
 Grant Thornton                          1
 Others/selection pending                4


Auditor                                        Examples

California (156)
 KPMG                                Levi Strauss, TiVo, Inamed Corp.
 Ernst & Young                       Oracle Corp., Hilton Hotels,
                                      E.piphany
 PricewaterhouseCoopers              Mattson Technology, Edison
                                      International
 Deloitte & Touche                   Calpine Corp., River Holding, Dole
                                      Food
 Grant Thornton                      Primecore Mortgage Trust
 BDO Seidman                         Broadvision
 Singer Lewak Greenbaum & Goldstein  Pyramid Oil
 Others/selection pending

Southern California (89)
 Ernst & Young                       Hilton, Anacomp, Smart & Final
 KPMG                                Peregrine Systems, California
                                      Amplifier
 PricewaterhouseCoopers              Autobytel, Ceradyne
 Deloitte & Touche                   St. John Knits, Tickets.com
 BDO Seidman                         American Spectrum Realty
 Grant Thornton                      Jmar Technologies Inc.
 Singer Lewak Greenbaum & Goldstein  Pyramid Oil
 Others/selection pending

Los Angeles County (40)
 Ernst & Young                       Hilton, Metro-Goldwyn-Mayer,
                                      Stamps.com
 PricewaterhouseCoopers              Edison International, 99 Cent
                                      Only Stores
 Deloitte & Touche                   Dole Food Co.
 KPMG                                Occidental Petroleum Corp.
 BDO Seidman                         TBA Entertainment Corp.
 Singer Lewak Greenbaum & Goldstein  Careside Inc.
 Grant Thornton                      Revcare Inc.
 Others/selection pending

Source: Auditor-Trak research and analysis. An exclusive service of
Strafford Publications Inc. Atlanta.