Execution Before Trial for Andersen
By FLOYD NORRIS
The New York Times
March 15, 2002
Arthur Andersen admits to making a lot of mistakes, but it refused to plead guilty to obstruction of justice. And so yesterday it was indicted in what the firm said was "a gross abuse of government power."
It is customary to say that a judge and jury will decide guilt. But in this case, the punishment may well come before the verdict. The maximum legal penalty, said Deputy Attorney General Larry D. Thompson in announcing the indictment, is a $500,000 fine. In reality, many in the accounting business believe, the death penalty seems virtually certain.
As Dr. Samuel Johnson once pointed out, the prospect of hanging concentrates the mind. Knowing it faces death if it dallies, Andersen may choose to demand an immediate trial and see if the Justice Department can prove that the firm — as opposed to some of its partners — is guilty.
Conceivably, acquittal could give it a chance to survive. But this is a firm that was unable to find a merger partner because of its incalculable financial liabilities stemming from the problems at Enron (news/quote) and that is having more clients desert every day. Even though the Securities and Exchange Commission says it will still accept Andersen's audits, few companies want to risk telling their shareholders that they are hiring Andersen again. Even before the indictment, Andersen's reputation was in tatters.
Andersen does have some supporters. "They should survive," said David S. Ruder, a law professor at Northwestern University and a former S.E.C. chairman. "Even the allegations at their worst," he added, make it appear that 95 percent of the firm was not involved. "I don't see any need to dissolve Andersen and force it into bankruptcy," he said, adding that the firm could be a very good auditor after it makes the reforms proposed by Paul A. Volcker, the former chairman of the Federal Reserve Board. Yesterday, Andersen pledged to make those reforms.
Deputy US Attorney General Larry Thompson, center, joined by Task Force Prosecutor Leslie Cauldwell, left, and Assistant Attorney General Michael Chertoff, announces the indictments against the accounting firm of Authur Andersen for destruction of document pertaining to the United States government's investigation of the Enron energy company at the Justice Department in Washington, DC, on Thursday.
One government official involved in the case expressed concern about the indictment's consequences for Andersen. "The sentence does not fit the crime," said the official. He added that he feared reform efforts would be set back if Andersen did not survive to adopt Mr. Volcker's ideas. The other major accounting firms, now being called the Final Four, have shown scant enthusiasm for the Volcker proposals.
Andersen's death, if it does come, could be messy. Others in the Final Four may try to pick off Andersen affiliates in foreign countries. There could be a scramble by companies to sign up new auditors before competing firms decide they have all the clients they can handle.
In recent weeks, there was talk of a global settlement in which Andersen would cut a deal with the Justice Department and resolve S.E.C. charges with commitments for reform. Such an agreement might have provided the basis for Andersen's survival, either alone or with a dignified merger into another firm. But negotiations broke down, and the indictment followed.
In the current political environment, said Arthur Levitt, a former S.E.C. chairman, it was impossible for government agencies "to broker the kind of settlement that might have preserved the best elements of Andersen" and kept it in business.
"This is a sad moment," Mr. Levitt added. "I hope the opportunity for reform will not be lost."
There is no doubt that Andersen employees shredded huge quantities of Enron documents after the S.E.C. began its investigation. Andersen argued that its senior management did not authorize the destruction, and presented a report by independent law firms to support its claims. If prosecutors have evidence to the contrary, they did not disclose it.
But even if top management did not know of the shredding, it did make some major errors in judgment. Last year, when Andersen became the first major accounting firm in decades to face a civil fraud complaint filed by the S.E.C., Andersen settled the case without admitting or denying the charges, which stemmed from fraudulent financial statements filed by Waste Management (news/quote) in the mid-1990's.
Andersen did not even appear contrite. There was no sense that the firm thought the Waste Management case showed it had a serious internal problem. The partners implicated in that case were not publicly disciplined, and one of them was even allowed to write the document-retention policy that David B. Duncan, the fired Houston partner in charge of the Enron audit, cited as support for the shredding he ordered.
Had Andersen's management appeared to be vigilant about bringing change, perhaps the Justice Department would have been less eager to prosecute now. Or perhaps one of the many Andersen employees involved in the shredding would have notified senior management when it started, thus perhaps stopping it quickly.
"It is sad about Andersen, because there are thousands of good people there who do not deserve what is going to happen to them," one former federal regulator said yesterday. "But they should have thought about this possibility."
There was plenty of sadness yesterday. "I find it impossible to believe this happened," said Karen Andersen, whose grandfather, Walter, was Arthur Andersen's brother and first partner in the firm when it began in 1913. "They were such a good firm for so long."
One Andersen partner, reached at his desk last night, said auditors were trying to carry on. "We're working like we'll be here," he said. "I guess we're optimistic, or maybe we are naïve. I'm still proud to be associated with this firm. I think the firm should get a chance to survive. It is worth saving."
Andersen's corporate motto, "Think straight, talk straight," was translated from the Norwegian by Arthur Andersen, said Ms. Andersen, who now lives in St. Paul, and works as a publications coordinator for a nonprofit organization. She said it came from her great-grandmother, Marie Kathinka Aaby Andersen, an immigrant from Norway.
Perhaps the Andersen family history provides some hope. Arthur's father nearly died when a ship he was on sank in the Atlantic as he was traveling from Norway to America. He was rescued by the S.S. Missouri and wound up in Chicago. To some, survival for his son's namesake firm would now seem no less miraculous. |
