Re: 6/1/05 - [Enron] Mercury News: Justices overturn auditing verdict
Posted on Wed, Jun. 01, 2005
Justices overturn auditing verdict
ANDERSEN RULING SETS HIGHER BAR IN SHREDDING CASES
By Deborah Lohse
Mercury News
In a blow to prosecutors seeking to prevent corporations from destroying documents while under investigation, the U.S. Supreme Court unanimously overturned Tuesday the 2002 conviction of accounting firm Arthur Andersen for obstructing the government's probe of Enron.
The court found that the Andersen jury was given faulty instructions that made it too easy for the jury to find Andersen guilty for a now-famous burst of document shredding. Prosecutors had contended that Andersen intended to hinder the government probe of Enron, the Houston energy giant that became the poster child for boom-era corporate excess.
The court didn't rule on whether the now-defunct accounting firm had criminal motives. But legal experts said the 9-0 opinion written by Chief Justice William Rehnquist could dissuade prosecutors from pursuing obstruction-of-justice cases for document shredders unless they can solidly prove the perpetrator intended to break the law.
The decision gave former Silicon Valley investment banker Frank Quattrone fresh ammunition to appeal his conviction on three charges related to documents that he urged his colleagues to destroy while his former firm was under federal investigations.
Andersen's indictment and subsequent guilty verdict led to the demise of the 89-year-old firm three years ago, forcing 28,000 employees to scramble for new jobs. Some of them Tuesday said the reversal was welcome, but useless, news.
``We're not going to bring Andersen back, but we certainly feel vindicated,'' said Kim Le, a former Andersen manager in San Jose who started an auditing business with other former Andersen employees.
Andersen was found guilty in June 2002 of obstructing a Securities and Exchange Commission investigation into Enron, which Andersen audited. Andersen's employees went on a spree of document shredding at a time when Andersen knew Enron was being investigated -- but before Andersen itself had been served with a subpoena. The government said the motive was to obstruct its probe.
But Andersen claimed -- as Quattrone would later in his own case -- that it was simply following a longstanding company policy to purge early drafts and other extraneous documents from files.
The Supreme Court didn't rule on whether the government had proved Andersen's criminal motives, because it found fatal errors in how the jury was told to interpret the law.
During the trial, the judge agreed to prosecutors' request to alter the traditional instructions to jurors on how to find someone guilty of ``corruptly persuading'' others to obstruct justice.
Instead of telling jurors to consider whether Andersen had acted ``knowingly and dishonestly,'' jurors had only to find that Andersen intended to impede the investigation.
``The problem they had with the jury instructions is that someone could be convicted of obstruction without thinking they were doing anything wrong,'' said Dan Bookin, a former federal prosecutor now with O'Melveny & Myers in San Francisco.
Some lawyers said Tuesday that the Supreme Court's decision might force federal prosecutors to dig harder for proof before charging corporations or employees with obstructing an investigation.
``You've got to show that the person intentionally tried to obstruct a government examination,'' said Bradford Lewis, a former federal prosecutor now with Fenwick & West in Mountain View. ``Before this decision, that was a question mark in a lot of people's minds.''
Quattrone's judge didn't use the same faulty language in his jury instructions. But some lawyers said Tuesday's Andersen reversal might still help Quattrone by allowing the appeals panel to look at his conviction with a new legal backdrop that's less favorable to prosecutors.
``I do think this will have an impact on the Quattrone case,'' said Lewis. ``Even if it's not directly on point legally, it's very close.''
Quattrone was found guilty last year of obstructing two investigations and witness tampering for encouraging his colleagues to destroy some documents.
Prosecutors said Quattrone had unique knowledge about the investigations that made his actions criminally motivated. But Quattrone argued that he thought the investigations were focused on others at his firm, and said he and his employees were required to purge extraneous documents at year-end.
Several lawyers said it was remarkable and rare that the Supreme Court reached a unanimous verdict that so clearly rebuked the government's handling of a criminal case.
``The jury instructions were so bad that the court could agree on that fact by nine to zero. That's how bad the instructions were,'' said Joseph Grundfest, Stanford University professor of law and business.
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