online.wsj.com
Jury Convicts Andersen Of Obstruction of Justice
By JONATHAN WEIL and ALEXEI BARRIONUEVO
Staff Reporters of THE WALL STREET JOURNAL
HOUSTON -- A 12-person jury convicted Arthur Andersen LLP of a single felony count of obstructing an official government proceeding, delivering a verdict that will forever stain the legacy of this once-revered American institution.
The jury took 72 hours over 10 days to decide that the destruction of paper and computer files wasn't routine housekeeping, as Andersen contended, but an attempt to thwart federal regulators investigating Enron Corp.
The conviction, all but sealed after a week of deliberations when U.S. District Judge Melinda Harmon ruled for the government on a key jury instruction, bars Andersen from auditing the financial statements of companies registered with the Securities and Exchange Commission.
On Friday, the judge gave jurors greater flexibility to reach a guilty verdict by ruling that they didn't have to agree on who committed a crime as long as they all believed someone at the firm "acted knowingly and with corrupt intent."
However, the jury unanimously agreed on the same corrupt persuader, which means that Judge Harmon's ruling had no bearing on the outcome.
The verdict won by Justice Department prosecutors Samuel Buell, Andrew Weissmann and Matt Friedrich caps an unusually speedy federal trial that lasted a little over a month in one of history's most closely watched white-collar criminal cases.
The decision, which will be appealed, marks a disgraceful end for the firm that opened its doors on Dec. 1, 1913, at 111 West Monroe St. in Chicago as Andersen Delaney & Co., and eventually grew to become among the world's most-trusted professional-services firms. In the end, to borrow phrases from Enron Vice President Sherron Watkins and Andersen partner James Hecker of Houston, it imploded "in a wave of accounting scandals" and was convicted based on a series of "smoking guns" that "it could not extinguish."
Even before Andersen's trial began a month ago, the case appeared open-and-shut, based solely on a technical reading of the witness-tampering statute under which Andersen was indicted. Prosecutors merely had to prove that a single Andersen partner or employee had at least tried to persuade another to destroy documents pertaining to the firm's audits of Enron with the intent of keeping them out of the hands of the Securities and Exchange Commission last fall.
Then, a week into deliberations, the jurors asked if conviction required that they agree on the identity of who at Andersen acted corruptly. Judge Harmon considered arguments and briefs from both sides, taking a day before issuing her decision. She said her ruling was on a point of law never directly addressed before by a U.S. court.
The decision, for which she offered no immediate explanation, allowed the jury to hold Andersen criminally liable even if jurors wouldn't have voted unanimously to convict any of its partners or employees individually had they been on trial themselves.
Her decision had been seen as a major boost for the government.
Former Andersen partner David Duncan, who pleaded guilty to obstruction of justice in April, testified to doing just that. And he was just one of several Andersen figures singled out by prosecutors as culprits whose actions brought criminal liability upon the firm as a whole. The strength of the government's case left Andersen's legal team, led by Houston attorney Rusty Hardin, with little choice but to pursue a high-risk legal strategy of convincing jurors that Mr. Duncan's admissions weren't credible.
And Mr. Hardin made a valiant effort of trying to portray the 43-year-old father of three young girls as an innocent man who pleaded guilty not because he had committed a crime but out of fear of prosecution for more serious crimes like accounting fraud. Andersen attacked the government's case at every level, homing in especially on prosecutors' allegations that "corrupt persuaders" within the firm had specifically intended to impede SEC investigators pursuing information about Enron's collapse.
It wasn't enough.
"We, the Jury in the above entitled cause, find the Defendant, Arthur Andersen LLP, guilty of the offense charged in the indictment," the jurors stated in the verdict.
The firm now awaits sentencing. The maximum penalty for the criminal violation for which Andersen was indicted is $500,000.
Throughout the trial, Andersen has cited a bevy of potential grounds for reversal. During one exchange last month, Mr. Hardin accused U.S. District Judge Harmon of creating "totally reversible error" by allowing prosecutors in front of jurors to discuss personal notes taken by a witness that had invoked the Fifth Amendment in declining to testify. And throughout the proceedings, the firm's lawyers have objected to the government's introduction of evidence related to Andersen's audit failures at Sunbeam Inc. and Waste Management Inc. as prejudicial. Judge Harmon permitted the government to present those prior "bad acts" as evidence of Andersen's motive to destroy Enron-related documents in the face of an imminent SEC inquiry into the firm's work.
Any finding by the SEC could have triggered a violation of a consent decree Andersen agreed to last year as part of a civil-fraud settlement with the SEC over its Waste Management audits during the 1990s. The order barred the firm from committing future violations of the nation's securities laws, and its implementation effectively placed the firm on probation with the SEC, which could revoke the firm's ability to audit public companies if Andersen ever violated it.
It remains unclear how quickly the SEC will act to revoke the firm's standing to practice accountancy before the SEC, though the firm's death is a virtual certainty no matter how the commission proceeds. The firm has lost hundreds of clients since its indictment was unsealed March 14. Convicted felons are barred from auditing SEC-registered companies without a waiver from the commission.
But the law on this point is loosely worded. It says a company shall be suspended from practicing before the SEC in the event of a criminal conviction. However, the definition of a criminal conviction is unclear, and may be left to the SEC to decide whether it takes effect upon sentencing or if the firm will be allowed to first exhaust the appeal process.
The conviction gives new momentum to the Justice Department's Enron Task Force, whose investigation continues. An acquittal had threatened to drain support for the government's broader probes into the actions of former Enron executives. And with the conviction, further indictments of Andersen personnel remain a possibility.
Prosecutors have told Judge Harmon that Andersen's Nancy Temple, among others, is a subject of the task force's criminal investigation. Ms. Temple's handwritten notes showing she had anticipated an SEC inquiry into the firm and its potentially disastrous consequences as far back as Oct. 9, a full month before the firm received a subpoena from the SEC, were among the key points of evidence that prosecutors cited throughout the trial.
Prosecutors charged that it was Ms. Temple's reminders to follow Andersen's euphemistically dubbed "document-retention" policy that sparked widespread destruction of Enron-related documents throughout the firm's offices in Houston, Chicago, London and Portland, Ore., last fall. Ms. Temple took the Fifth when called as a witness in the firm's trial last month, and she has declined to comment publicly ever since her testimony before Congress this past winter.
Write to Jonathan Weil at jonathan.weil@wsj.com and Alexei Barrionuevo at alexei.barrionuevo@wsj.com
Updated June 15, 2002 12:45 p.m. EDT
KJC |
