Andersen Loses Enron Audit Verdict
Sat Jun 15, 7:19 PM ET
By KRISTEN HAYS, Associated Press Writer
HOUSTON (AP) - 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 Weissman 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 ( news - web sites) 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.
Defense attorney Rusty Hardin said 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."
Prosecutors spent a month presenting testimony from employees, federal
regulators and FBI ( news - web sites) agents. They also showed jurors
mounds of documents, e-mails and handwritten notes they said proved
Andersen had covered up a scandal.
Their key argument was that Andersen, just before regulators began
investigating Enron, suddenly promoted a little-used document policy as a
signal to its Enron audit team to begin destroying files.
The star prosecution witness was Duncan.
Duncan pleaded guilty to obstructing justice in April and spent nearly a week
on the witness stand, telling jurors that he had signed an agreement with
Andersen to present a united front that neither did anything wrong.
He said he reneged on the agreement after a lot of "soul searching."
"I obstructed justice," he testified. "I instructed people on the (Enron audit)
team to follow the document retention policy, which I knew would result in
the destruction of documents."
The jury was also shown an Oct. 10 video of Andersen partner Michael Odom
telling colleagues - including a dozen on the Enron audit team - that the
document policy should be followed. He said anything destroyed before
litigation is filed was "great" because "whatever might have been of interest to
anybody is gone and irretrievable."
Temple sent an e-mail to Odom on Oct. 12 that said it "might be useful to
consider" reminding the Enron audit team "of our documentation and
retention policy. It will be helpful to make sure that we have complied with
the policy."
Five days later, the Securities and Exchange Commission told Enron it was
under an informal inquiry after the company announced a $618 million
third-quarter loss and a $1.2 billion writedown in its own value.
Duncan testified that he told his staff during an Oct. 23 "pep talk" to comply
with the document policy, but he said he didn't explicitly order shredding.
Other evidence included an Oct. 24 e-mail from Shannon Adlong, an assistant
to Duncan, who wrote: "AARRGGH. Send more shredding bags. Just kidding,
we ordered some."
The shredding continued through Nov. 9, when the audit team learned that
the SEC had sent a subpoena for Enron documents to the firm the day before.
Andersen argued that workers simply were weeding out unneeded
documents.
Hardin said a number of important documents survived the shredding,
suggesting there was no conspiracy. He got Duncan to testify that he
preserved several potentially embarrassing records, including one labeled
"Smoking guns you can't extinguish."
Duncan could get up to 10 years in prison at sentencing Aug. 26, though
prosecutors are expected to seek a lesser sentence. His lawyer, Robert
Giuffra, said Duncan is still cooperating with the government.
story.news.yahoo.com |
