Andersen Conviction Overturned: Too Little Too Late.
Supreme Court overturned the 2002 conviction of accounting firm Arthur Andersen
("Andersen") related to destroying documents from their audit of Enron
Corporation. The ruling unanimously stated that the jury instructions were too
Justice Department's investigation led to just one guilty plea, from David Duncan,
Andersen's former partner overseeing the Enron Corporation's audit. The original
conviction of Andersen led to having its' accounting license revoked; preventing
Andersen from conducting public audits. Over
25,000 global employees were let go as a result.
The reversal of the conviction
is a bittersweet symbolic victory for the 25,000 employees that were let go as
a result of the original jury verdict.
Justice William H. Rehnquist, writing the opinion for the Supreme Court, stated
the former Big Five accounting firm's obstruction-of-justice conviction was improper
because the instructions at trial were too vague for jurors to determine correctly
whether Andersen obstructed justice.
The Supreme Court written opinion
stated it was not necessarily wrong for companies to instruct employees to destroy
documents. Andersen's legal defense team argued that employees who shredded documents
followed the firm policy and there was no intent to thwart the SEC investigation
or obstruct the law.
Andersen spokesman Patrick Dorton stated "We
pursued an appeal of this case not because we believed Arthur Andersen could be
restored to its previous position, but because we had an obligation to set the
record straight. We are very pleased with the Supreme Court's decision.".
Justice Department said it was disappointed and was reviewing its options, including
retrying the case. "We remain convinced that even the most powerful corporations
have the responsibility of adhering to the rule of law," said acting assistant
Attorney General John C. Richter.
are the ramifications of this outcome ?
Government officials now have
hindsight on their side when viewing the outcome of the original conviction. The
Sarbanes-Oxley Act was to help protect shareholders, employees and the public
at large. After seeing how 25,000 employees lost their jobs and the reduction
of public accounting firms that are capable of performing audits on publicly held
corporations, it is unlikely that the Justice Department will prosecute public
accounting firms with such vigor. By prosecuting specific individuals only, entities
such as Andersen, will be able to survive as a result of possible future litigation.
With the "Big Eight" now the "Big Four", there won't be many
companies left to perform audits. What would investor and public confidence be
like if more public accounting firms had their licenses revoked? Imagine if there
were only the "Big Two" or the "Only One" left. Regulators
have. Which is precisely why the Justice Department has recently negotiated settlements
between and public accounting firms KPMG and Price WaterHouse Coopers instead
of prosecuting those firms.
In addition, corporations that have formal
document retention policies will have more latitude to destroy documents without
fear of potential prosecution. Of course, with more documentation now stored electronically,
companies may not realize that the files still exist in storage.
Nelson Chin worked at Andersen from 1986 - 1989, before any of the legal issues
2005 Nelson Chin.
inquire about consulting or speaking engagements, e-mail: Nelson