April 28 (Bloomberg) -- Arthur Andersen LLP agreed to pay $16 million to Enron Corp. creditors to settle claims that the accounting firm was negligent in auditing and advising the energy trader, which collapsed in bankruptcy in 2001.

A hearing on whether a bankruptcy judge should approve the settlement is scheduled for May 14. The accord resolves a lawsuit filed in Houston accusing Arthur Andersen, now largely defunct, of approving transactions that manipulated Enron’s financial condition for the benefit of its executives.

“It was a long process and we’re glad we were able to reach a settlement,” Harlan Loeb, a spokesman for the creditors, said today in a phone interview. The two sides asked a judge to approve the accord in a document filed April 21 in U.S. Bankruptcy Court in New York.

Enron, based in Houston, was the world’s largest energy- trading company, with a market value of as much as $68 billion, before it imploded amid allegations of accounting fraud. Arthur Andersen, its outside auditor, was convicted by a federal jury in 2002 of obstructing an investigation into Enron’s collapse. The U.S. Supreme Court overturned that verdict in 2005.

Four former Arthur Andersen partners are winding down the company, including overseeing remaining litigation.

A call to Arthur Andersen seeking comment wasn’t immediately returned. The company continues to deny the creditors’ allegations, according to the request to approve the settlement.

‘Great Accounting Firms’

“I am sure that a settlement by Andersen would be a relief to many of its former partners who lived through a devastating devolution of one of the great accounting firms,” said Blair Fensterstock, a New York lawyer who represented more than 200 ex-partners in a 2005 arbitration against Arthur Andersen over their retirement benefits. “Any resolution of the situation that brought down Andersen would be a relief.”

The accounting firm settled the case Fensterstock brought for an undisclosed sum.

The creditors in the Texas case said Chicago-based Arthur Andersen “failed to fully and candidly apprise the board with respect to certain high-risk transactions orchestrated by the Enron insiders and failed to fulfill its obligations to Enron,” according to the April 21 filing.

The Enron creditors have recovered more than $22 billion, or more than 50 cents on the dollar, Loeb said. In January, Goldman Sachs Group Inc. agreed to pay $6.95 million to settle claims over some debt payments made before the energy trader’s collapse. About $128 million was distributed to creditors this month, Loeb said.

‘Clear Indication’

“This settlement is a clear indication that the post- bankruptcy era of Enron is drawing to a close quickly,” he said.

A federal court jury in Houston found former Enron Chief Executive Officer Jeffrey Skilling and former Chairman Kenneth Lay guilty in 2006 of deceiving investors, analysts and employees about the company’s deteriorating financial condition. Skilling is in prison. Lay died before sentencing.

The case is Official Committee of Unsecured Creditors of Enron Corp. v. Fastow, 04-91, U.S. District Court, Southern District of Texas (Houston). The bankruptcy case is In re Enron Creditors Recovery Corp., 01-16034, U.S. Bankruptcy Court, Southern District of New York (Manhattan).

To contact the reporter on this story: Thom Weidlich in New York at tweidlich@bloomberg.net.

Last Updated: April 28, 2009 16:57 EDT