Andersen Gets Probation In Enron Case

Arthur Andersen Investigation, 020314, GD
Arthur Andersen LLP was sentenced Wednesday to five years' probation and fined $500,000 for obstruction of justice related to its handling of Enron Corp. documents, which prosecutors said were doctored or destroyed last year to thwart a federal probe of the energy company's finances.

Lawyers for the firm, already a shadow of the $4 billion entity it was a year ago, have said they will appeal.

Both the fine and the probation were the maximum sentences allowed under law.

Former federal prosecutor Robert Mintz, now a lawyer in private practice, said probation means Andersen is on notice that it faces more fines and extended probation if it violates terms handed down by U.S. District Judge Melinda Harmon.

Andersen's criminal trial was the first to emerge from last year's dizzying collapse of the giant energy trader. Andersen, based in Chicago, stopped auditing public companies after 89 years in the business, and now has fewer than 1,000 of 28,000 workers left on the payroll.

Andersen was accused of shredding Enron-related documents last year to thwart a Securities and Exchange Commission accounting probe. Legal Analyst Andrew Cohen says it's no surprise that the firm got the maximum penalty, "even though that sentence doesn't appear particularly harsh."

Cohen says the "trial always was more about symbol than substance and, of course, the case essentially ruined Arthur Andersen anyway so it would have been hard for the judge to top that punishment."

Given what's already happened to Andersen in this case, Wednesday's sentence "is just icing on the cake for prosecutors."

According to jurors, the knockout blow came May 14 when David Duncan, the former auditor in charge of the Enron account, testified that in-house attorney Nancy Temple told him to remove a sentence and her name from a memo regarding Andersen's take on Enron's Oct. 16 earnings release, which was rife with bad news.

"I believed it was misleading from a personal standpoint," Duncan said.

Andersen fired Duncan in January shortly after publicly acknowledging that Enron documents had been shredded. He later pleaded guilty to obstruction of justice and agreed to cooperate with the government in exchange for immunity for other possible crimes and the recommendation of a light sentence.

No one else at Andersen has been charged.

The firm and many of its former partners face lawsuits from shareholders left with near-worthless stock after failures of Enron and WorldCom Inc.

An Arizona judge last month approved a $217 million settlement from Andersen to resolve lawsuits stemming from the Baptist Foundation of Arizona's 1999 bankruptcy. Plaintiffs claimed Andersen ignored or poorly investigated accounting problems that fueled the largest bankruptcy by a nonprofit agency in U.S. history.

Arthur Bowman, editor of Bowman's Accounting Report, said Andersen's downfall means the remaining Big Four accounting firms have to be more scrupulous and more skeptical of clients, particularly if accounting practices are questionable.

"Last year, we had no clue that one of the Big Five would disappear by now and that is shocking," Bowman said. "This is a wake-up call to the other firms that they should be doing their work properly or they, too, could go down."