Arthur Andersen Faces Suit by Oaktree Capital

Arthur Andersen faces a lawsuit over its audit of Sunbeam from Oaktree Capital Management, which in 1998 purchased debt in the now-bankrupt appliance maker.

L.A.-based Oaktree claims the accounting firm endorsed Sunbeam’s inflated sales and earnings for its 1996 and 1997 fiscal years, which served as “the cornerstone of the marketing effort for the Sunbeam” debt, according to a negligence and fraud suit filed in Los Angeles Superior Court.

Oaktree, which manages more than $18 billion, says it purchased $105 million in Sunbeam’s zero-coupon convertible senior subordinated debt due in 2018. The management firm seeks compensation for its losses and punitive damages.

Andersen “had the duty and opportunity” to assure that Sunbeam’s financial statements “fairly presented the company’s financial position,” the 49-page lawsuit said.

The lawsuit also names Al Dunlap, Sunbeam’s former chairman and chief executive, as a defendant. The Securities and Exchange Commission in May charged Dunlap with masterminding a scheme to inflate earnings and make Boca Raton, Fla.-based Sunbeam more attractive to potential buyers.

Sunbeam, which makes Oster blenders and Mr. Coffee coffee makers, filed for bankruptcy protection from creditors in February. Under a proposed reorganization plan, bondholders and stockholders would get nothing.

Closely held Andersen, the world’s fifth-largest accounting firm, in April reportedly agreed to pay $110 million to settle a class-action suit filed by Sunbeam shareholders.

In June, Chicago-based Andersen agreed to pay $7 million to settle SEC charges that it issued false and misleading audit reports about Waste Management (ticker symbol: WMI) during a five-year period.

Andersen did not comment Tuesday on Oaktree’s lawsuit.