Arthur Andersen, LLP is an American accounting firm that primarily serves large corporations.

The Complaint details how during the Class Period, WorldCom, the nation's second-largest long-distance carrier, overstated its cash flow by $3.8 billion during 2001-2002 in what may be the largest case of corporate fraud in history. As detailed in the Complaint, instead of the $1.4 billion in profits the Company reported in 2001 and $130 million in Q1 2002, the Company now admits it lost money during those periods but does not know how much. As further detailed in the Complaint, the Company, under the guidance of Messrs. Ebbers and Sullivan, booked basic operating costs like basic network maintenance as capital investments, a fictitious practice that hid expenses, inflated cash flow and allowed the Company to falsely report profits instead of losses. In short, this accounting machination boosted cash flow because it improperly treated costs as an asset that could be written down over time, not immediately. Importantly, this practice of moving certain transfers from line item expenses to capital accounts is a blatant violation of Generally Accepted Accounting Principles and Generally Accepted Accounting Standards. Absent this improper accounting practice, the Company would have reported a net loss for 2001, as well as the first quarter of 2002. WorldCom reported a profit of $1.4 billion for 2001 and $130 million for the first quarter of 2002, each patently false.

Arthur Andersen also knew that this type of accounting practice was improper and, according to published reports, Andersen's audit reports "could not be relied upon for at least "the five quarters in question." As an experienced auditor charged with the responsibility of preparing disclosures to be filed with the SEC, Andersen knew the line cost transfers did not comport with GAAP and GAAS, but either intentionally or recklessly disregarded this pervasive fraud to the detriment of the Class. Anderson, however, issued a March 7, 2002,"Report Of Independent Public Accountants" that was included in the Company's false 2001 Form 10-K that was filed with the SEC on March 13, 2002. Anderson's opinion letter falsely stated that it had properly audited the Company's 2001 balance sheet and that in Anderson's opinion, "we believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of WorldCom, Inc. and subsidiaries as of December 31, 2000 and 2001, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2001, in conformity with accounting principles generally accepted in the United States."

On October 22, 2002, the Court entered the Conditional Transfer Order, transferring the case to the U.S. District Court for the Southern District of New York, case number 02-CV-8226. According to the docket for 02-CV-8226, the case consolidated with lead case number 02-CV-3288.

According to a press release dated April 26, 2005, Arthur Andersen reached an agreement to pay $65 million to resolve a class-action lawsuit filed against it by investors in WorldCom in the wake of an $11 billion accounting scandal. The terms of the settlement, which requires court approval, are to be reviewed at a hearing on Tuesday before Denise Cote, the U.S. judge overseeing the WorldCom securities litigation. Under the terms, in addition to the cash payment, Andersen would pay claimants 20 percent of any amount paid by the firm to distribute its remaining capital to its present and former partners. The settlement would also essentially guarantee that if Andersen paid out a larger amount to settle another lawsuit, the firm must pay the difference to members of the WorldCom class. The settlement comes five weeks into trial proceedings and would resolve Andersen's potential liability for its work as auditor of WorldCom. Andersen was the last remaining Defendant in the case; other corporate Defendants had already settled.