Abandon ship: as Andersen founders in the Enron tempest, a firm new to the Carolinas races to the rescue of its practice here.

• Author: Martin, Edward
• Position: North Carolina 100

Mark Larson lies in bed thinking. "Is this a normal day, or is everything going in the fire again?" His wife sleeps as he showers. In another room, his 7-year-old son doesn't stir. It's barely 5 on a Saturday morning. The streets outside his north Raleigh house are still dark as he towels off and slips on a shirt.

Fifteen minutes later, his black Lexus pulls up at David Hunt's house. They'll stop in Chapel Hill to pick up Kevin Beasley, the third partner in Arthur Andersen's Raleigh office, then head to Charlotte, the sun rising behind them. It's after 8:30 when they reach The Morehead Inn, a 75-year-old converted mansion near downtown.

In a cottage out back, 25 to 30 Andersen partners, all but two of them men, most with graying temples, cluster around cloth-draped tables, sipping coffee and nibbling Danishes. Many have worked for the firm since college. Mike McGuire, head of Andersen Carolinas' audit practice, and others take turns outlining grim news. Two days earlier, a federal grand jury had indicted Chicago-based Arthur Andersen LLP on charges of obstructing justice in the Enron affair. How, someone wonders, can the government indict a whole company for crimes committed by a few people halfway across the country?

Headlines about shredding documents in Houston are spooking clients such as BB&T, whose contract alone is worth nearly $1 million a year. U.S. Securities and Exchange Commission rules bar an accountant convicted of a crime from auditing public companies. How bad would it be if a whole firm is convicted? A speakerphone rings. It's Atlanta, Andersen's Southeast headquarters, calling. In January, Enron had fired Andersen, trying to finger it for its woes. Settlement talks, the partners hear, aren't going well.

One o'clock, and the smell of pepperoni from hastily ordered pizza fills the cottage. The meeting should have ended by now. "The way this is shaping up," Hunt thinks, "we could face a real avalanche of defection." Then he contemplates the unthinkable: "We might not make it out of this."

The sun is sliding low on the horizon as the three partners climb into the Lexus. "As we drove back to Raleigh, the knot in your stomach started growing," Hunt recalls. "The longer you drove, the bigger it got." He calls March 16 "the day of the funeral."

Not everyone shares his pessimism. "I thought the meeting would be a good idea, to get together to come up with a Plan B, just in case," MzGuire recalls. "It was like The Three Musketeers, blood oath and all. We stick together, no matter what." That day, he and a few others set in motion events that will keep Andersen Carolinas together as part of a firm that didn't even exist here three months earlier. And their deal will help propel that firm into the top ranks of American public accounting by becoming a model for its acquisition of 13 Andersen practices nationwide.

Arthur Andersen is sinking. Grant Thornton becomes, as McGuire says, "the largest lifeboat to pull up to the Titanic."

HOUSTON (Jan. 22, 2001) -- Enron Corp. announces record earnings of $1.3 billion for 2000. Its annual report, as are all its financial statements, is audited by Arthur Andersen LLP.

Founded in Chicago in 1913, Andersen came to the Carolinas in 1958 in time to blossom with the state's transition from farms and mills to finance and technology. With auditing, tax and consulting offices in Charlotte, Greensboro, Raleigh and Columbia, S.C., it has grown to about 400 employees. In staff, it ranks second to PricewaterhouseCoopers in Charlotte. It is third in Greensboro and fifth in Raleigh.

Andersen Carolinas' strength is in the middle market. It not only compiles the annual North Carolina 100 ranking of the state's top private companies, it claims the lion's share as clients. It represents fewer public companies than its other Big Five rivals, but those it does are high profile -- and lucrative. Besides Winston-Salem-based BB&T, there are Ruddick, holding company for Harris Teeter, and SPX, a multinational manufacturing conglomerate, in Charlotte and Quintiles Transnational, a drug researcher, in the Triangle. All will abandon Andersen as the scandal deepens.

The firm considers itself the gold standard, not only for the accounting profession but of American business in general. Each year, it shows up on lists of the best places to work. The reasons can be found in Andersen Carolinas headquarters on the 37th floor of the 60-story Bank of America tower.

On a routine day before the storm breaks, office assistant Eldren Williams, 32, files and sorts audit and tax documents, much as he has for the seven years he has worked here. Sometimes, he is called on to go upstairs -- the 38th-floor executive offices -- to fill in...