Supreme Court overturns Arthur Andersen conviction

Wednesday, June 1, 2005

WASHINGTON -- The Supreme Court threw out the conviction of the Arthur Andersen accounting firm for destroying Enron Corp.-related documents, ruling unanimously Tuesday that the jury instructions were too broad.

The decision was a defeat for the Bush administration, which had declared prosecution of white-collar criminals a high priority following accounting scandals at major corporations. But it offered only symbolic relief for Andersen, the company whose 2002 conviction put 28,000 employees out of work and left it virtually defunct.

"We pursued an appeal of this case not because we believed Arthur Andersen could be restored to its previous position, but because we had an obligation to set the record straight," Andersen spokesman Patrick Dorton said. "We are very pleased with the Supreme Court's decision."

The Justice Department said it was disappointed and was reviewing its options, including retrying the case. "We remain convinced that even the most powerful corporations have the responsibility of adhering to the rule of law," said acting assistant attorney general John C. Richter.

The high court's decision was surprisingly swift, coming just over a month after the justices heard arguments in the case.

Chief Justice William H. Rehnquist, writing for the court, said the former Big Five accounting firm's obstruction-of-justice conviction was improper because the instructions at trial were too vague for jurors to determine correctly whether Andersen obstructed justice.

"The jury instructions at issue simply failed to convey the requisite consciousness of wrongdoing," he wrote. "It is striking how little culpability the instructions required."

Enron crashed in December 2001, putting more than 5,000 employees out of work, just six weeks after the energy company revealed massive writedowns.

As the Securities and Exchange Commission began looking into Enron's convoluted finances, Andersen put in practice a policy that called for the destruction of what it considered unnecessary documentation.

Government attorneys then went after Andersen, making it the first major prosecution in the wake of the Enron scandal, citing the firm's "unprecedented campaign of document destruction." They said Andersen was guilty under an obstruction law that made it a crime to "corruptly persuade" others to destroy documents.

In his opinion, Rehnquist said it is not necessarily wrong for companies to instruct employees to destroy documents. At trial, Andersen argued that employees who shredded tons of documents followed the policy and there was no intent to thwart the SEC investigation.

Like a mother who advises a son to invoke his right against compelled self-incrimination out of fear he might be convicted, "persuading" an employee to withhold information is not "inherently malign," Rehnquist wrote.

Legal experts said the ruling, which was widely expected, will shield former partners at Andersen from possible future litigation. Corporations that have document-retention policies also will have more freedom to destroy documents without fear of potential prosecution.

"This decision provides some much-needed clarity: Yes, it's still OK to use a document retention policy, and no, you won't be charged unless you destroy documents consciously knowing you're committing a fraud," said Brad Lewis, a former prosecutor who is now a criminal defense attorney at Fenwick & West.

Robin Conrad, senior vice president of the National Chamber Litigation Center, added: "This case is an example of why we need to be concerned about overly aggressive enforcement of the criminal statute. There was severe collateral damage to the tune of 28,000 people put out of work."

The probe into Andersen led to just one guilty plea, from the firm's former top Enron auditor, David Duncan. But the conviction of the Chicago firm forced it to surrender its accounting license and stop conducting public audits.

Most of Andersen's workers have since moved to other accounting firms, leaving fewer than 200 Chicago-based employees. They largely handle lawsuits.

Jonathan Goldsmith, a former Andersen consultant who now runs the Web site, called the ruling a bittersweet day for former employees.

"Most of the Andersen folks really believed that there was not enough wrongdoing on anyone's part to convict the whole firm," he said. "So, it's kind of like a we-told-you-so thing, three years later, but with no real reward."

The case is Andersen v. U.S., 04-368.

On the Net:

The opinion in Arthur Andersen v. United States is available at:

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