Supreme Court overturns Arthur Andersen conviction

Greg Stohr

Tuesday, May 31, 2005 | 11:09 a.m.

The U.S. Supreme Court overturned accounting firm Arthur Andersen LLP's conviction for obstructing a government investigation into Enron Corp., dealing a unanimous rebuke to the Bush administration's corporate-fraud crackdown.

The court today said the 2002 jury instructions were faulty because they didn't require proof that Andersen officials knew they were doing something wrong. Andersen, now defunct, was accused of illegally urging employees to shred documents connected to its Enron audits.

The instructions "simply failed to convey the requisite consciousness of wrongdoing," U.S. Chief Justice William H. Rehnquist wrote for the court in Washington. "Indeed, it is striking how little culpability the instructions required."

The decision comes too late to revive a company that once was the world's fifth-largest accounting firm with 85,000 worldwide employees. Chicago-based Andersen no longer conducts public audits and now has only 200 employees, mostly lawyers and administrators.

Still, "it's a tremendous vindication" for the firm and its employees, said Rusty Hardin, who served as Andersen's lead attorney during the trial. "They never intended to do anything wrong. They certainly never intended to obstruct justice."

Acting U.S. Assistant Attorney General John C. Richter said the government hasn't decided whether to retry the case. Criminal law experts, including former Justice Department official William B. Mateja, previously said a new trial was unlikely.

"We remain convinced that even the most powerful corporations have the responsibility of adhering to the rule of law," Richter said.

The ruling overturns a $500,000 fine for the firm and may help Andersen's former partners as they try to resolve civil lawsuits seeking billions of dollars. The court acted with unusual speed, issuing its decision barely a month after hearing arguments.

Andersen was accused of persuading its employees to purge and shred tens of thousands of company records just as the U.S. Securities and Exchange Commission was preparing to open a formal investigation into Enron's accounting. Prosecutors opted not to charge Andersen for the document destruction itself.

Enron, a Houston-based energy trader, lost $68 billion in market value in an accounting fraud that led to its December 2001 bankruptcy filing.

Andersen said it was merely reminding employees of its longstanding "document-retention policy," which called for elimination of duplicates, drafts and notes once an audit was complete.

That type of policy is "common in business," said Rehnquist, who announced the decision from the bench.

"It is, of course, not wrongful for a manager to instruct his employees to comply with a valid document retention policy," he wrote.

The ruling reversed a decision by the New Orleans-based 5th U.S. Circuit Court of Appeals upholding the conviction.

The fight concerned the language of a federal witness- tampering law, which authorizes 10 years in prison for someone who "corruptly persuades" another to destroy evidence. For future cases, that statute has been superseded by the 2002 Sarbanes-Oxley Act.

Enron, once the world's largest energy trader, sought bankruptcy protection following disclosures that it hid billions of dollars of debt in off-book partnerships. Some of its top executives, including former Chairman Kenneth Lay, are facing criminal charges for their alleged roles in the accounting fraud. Andersen was Enron's auditor for 16 years.

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