Jurors convict Andersen firm of obstruction

Sunday, June 16, 2002

HOUSTON -- A jury on Saturday convicted Arthur Andersen of obstruction of justice, dealing the battered accounting firm a potentially fatal blow and giving a first victory to prosecutors investigating the sudden collapse of energy-trader Enron.

Andersen, which has already lost more than a third of its public clients, told regulators after the verdict it would stop auditing public companies by Aug. 31. An Andersen lawyer promised a legal fight to keep the company alive.

Government lawyers hailed the verdict as a major step toward unraveling the Enron scandal.

In interviews after the verdict, jurors said they based their decision on evidence that an Andersen in-house lawyer sought to doctor a memo about the Enron case.

Four jurors downplayed the government's claims that Andersen's destruction of tons of paper and thousands of computer files was an attempt to thwart federal regulators investigating Enron.

"All this business about telling people to shred documents was largely superficial and largely circumstantial," jury foreman Oscar Criner said.

Prosecutor Andrew Weissmann said the case boiled down to a simple principle: "When you expect the police, you don't destroy evidence."

The verdict, reached after 72 hours of deliberations over 10 days, is expected to bolster the federal investigation into what led to Enron's collapse late last year.

"It sends a strong message that we are going to get to the bottom of the Enron debacle and those people responsible will be prosecuted," said Leslie Caldwell, head of the criminal division of the Justice Department's San Francisco office and leader of its national Enron Task Force.

She said authorities were "still looking at all aspects of the case. ... We're not finished with Arthur Andersen."

In Washington, Deputy Attorney General Larry Thompson said prosecutors will seek more indictments.

"This verdict confirms that Andersen knew full well that these documents were relevant to the inquiries into Enron's collapse and that Andersen partners and employees personally directed these efforts to destroy evidence," Thompson said.

Prosecutors had argued that Andersen had intimate knowledge of the complex off-the-book partnerships that Enron used to boost its image of financial health and mask debt before its collapse into bankruptcy last December.

The energy trader is under a grand jury investigation, as well as scrutiny from Wall Street regulators and Congress.

Andersen now faces up to five years probation and a fine of up to $500,000. U.S. District Judge Melinda Harmon will decide the sentence Oct. 11.

The company also could be fined up to twice any gains or damages the court determines were caused by the firm's action. A Securities and Exchange Commission rule bars any firm convicted of a felony from auditing publicly traded companies, and experts said that could put the crippled firm out of business.

Andersen told the SEC after the verdict that it will cease auditing publicly traded companies by Aug. 31, the commission said in a statement. Andersen has already lost almost 800 of its 2,300 public clients.

Ripple effects from the verdict could seal Andersen's demise, said Itzhak Sharav, an accounting professor at Columbia University's business school.

He said more companies are now likely to fire Andersen as their auditor, state accounting boards will likely move to revoke Andersen's license to do business, and the company could be hit with a flood of civil lawsuits.

"Andersen is history, no matter what," Sharav said.

Appeal planned

Defense attorney Rusty Hardin said an appeal would be filed after sentencing, declaring: "This company did not commit a crime." He said any states that try to take away Andersen's business licenses would face litigation.

Andersen partner C.E. Andrews said it was too early for the company to talk about its future but said it will continue doing business for now.

"We don't have to rush out today and close our offices," he said. "Don't expect that. We will assess the outcome of this and make our decision. We're not going to stand here today on the courthouse steps and re-evaluate our business."

Jurors said they agreed unanimously that a single person was responsible for the wrongdoing at Andersen. That person was not identified in court, but jurors later said it was Nancy Temple, Andersen's in-house lawyer. She was one of the three witnesses who refused to testify for either side.

"We had to make sure someone corruptly persuaded someone else to do something that would result in the impairment of the fact-finding capability of an official proceeding," Criner said.

Jurors said Temple emerged during the lengthy deliberations as the "corrupt persuader" who orchestrated the effort to thwart an SEC probe into Enron that eventually encompassed Andersen.

Temple wrote lead Enron auditor David Duncan that he should remove her name from a memo because it would increase "the chances that I might be a witness, which I prefer to avoid."

The memo was Duncan's summary of a conference call about an Oct. 16 earnings release by Enron that revealed accounting problems. The energy trading company characterized some issues as "nonrecurring" when, Duncan said, the opposite was true.

"It was a perfect illustration of Nancy Temple and others getting rid of drafts and sanitizing the record," Weissmann said. "That document was devastating."

Respond to this story

Posting a comment requires free registration: