Andersen's Conviction Could Kill It

After obstruction of justice conviction, Arthur Andersen senior managing partner C. E. Andrews, left, speaks as Andersen defense attorney Rusty Hardin, right, listens outside the Federal Courthouse in Houston 061502
A jury on Saturday convicted Arthur Andersen of obstruction of justice, dealing the battered accounting firm a potentially fatal blow and giving a first victory to prosecutors investigating the sudden collapse of energy-trader Enron.

The conviction could put Andersen, which has already lost more than a third of its public clients, out of business, though an Andersen lawyer promised a legal fight to keep the company alive. Government lawyers hailed the verdict as a major step toward unraveling the Enron scandal.

In interviews after the verdict, jurors said they based their decision on evidence that an Andersen in-house lawyer sought to doctor a memo about the Enron case.

Four jurors downplayed the government's claims that Andersen's destruction of tons of paper and thousands of computer files was an attempt to thwart federal regulators investigating Enron.

"All this business about telling people to shred documents was largely superficial and largely circumstantial," jury foreman Oscar Criner said.

Prosecutor Andrew Weissman said the case boiled down to a simple principle: "When you expect the police, you don't destroy evidence."

The verdict, reached after 72 hours of deliberations over 10 days, is expected to bolster the federal probe into what led to Enron's collapse late last year.

"It sends a strong message that we are going to get to the bottom of the Enron debacle and those people responsible will be prosecuted," said Leslie Caldwell, head of the criminal division of the Justice Department's San Francisco office and leader of its national Enron Task Force.

She said authorities were "still looking at all aspects of the case. ... We're not finished with Arthur Andersen."

In Washington, Deputy Attorney General Larry Thompson said prosecutors will seek more indictments.

"This verdict confirms that Andersen knew full well that these documents were relevant to the inquiries into Enron's collapse and that Andersen partners and employees personally directed these efforts to destroy evidence," Thompson said.

Prosecutors had argued that Andersen had intimate knowledge of the complex off-the-book partnerships that Enron used to boost its image of financial health and mask debt before its collapse into bankruptcy last December.

The energy trader is under a grand jury investigation, as well as scrutiny from Wall Street regulators and Congress.

Andersen now faces up to five years probation and a fine of up to $500,000. U.S. District Judge Melinda Harmon will decide the sentence Oct. 11.

The company also could be fined up to twice any gains or damages the court determines were caused by the firm's action. A Securities and Exchange Commission rule bars any firm convicted of a felony from auditing publicly traded companies, and experts said that could put the crippled firm out of business.

Andersen informed the SEC after the verdict that it will cease auditing public companies by Aug. 31, unless the SEC requests a different date, the commission said in a statement. Andersen has already lost almost 800 of its 2,300 public clients.

Ripple effects from the verdict could seal Andersen's demise, said Itzhak Sharav, an accounting professor at Columbia University's business school.

He said more companies are now likely to fire Andersen as their auditor, state accounting boards will likely move to revoke Andersen's license to do business, and the company could be hit with a flood of civil lawsuits.

"Andersen is history, no matter what," Sharav said.

`It's unfortunate, but it would have been dead either way. It is now just a shell of a company,'' said Drew Satherlie, a former manager at Chicago-based Andersen. "A not guilty verdict would have been a great vindication but would not have bought it back."

Hector Morales is mad about the government prosecution of the once-proud accounting firm. "We didn't do anything wrong. We cooperated, and this is what we get for cooperating with the government. You get a kick in the teeth basically,'' said Morales, who works in the Human Resources department in Chicago.

Defense attorney Rusty Hardin said appeal would be filed after sentencing, declaring: "This company did not commit a crime." He said any states that try to take away Andersen's business licenses would face litigation.

Andersen senior managing partner C.E. Andrews said it was too early for the company to talk about its future but said it will continue doing business for now.

Jurors said they agreed unanimously that a single person was responsible for the wrongdoing at Andersen. That person was not identified in court, but jurors later said it was Nancy Temple, Andersen's in-house lawyer. She was one of the three witnesses who refused to testify for either side.

"We had to make sure someone corruptly persuaded someone else to do something that would result in the impairment of the fact-finding capability of an official proceeding," Criner said.

Jurors said Temple emerged during the lengthy deliberations as the "corrupt persuader" who orchestrated the effort to thwart an SEC probe into Enron that eventually encompassed Andersen.

CBS News consultant Andrew Cohen says when jurors agreed on a single employee of Andersen who had engaged in the illegal conduct that supported the conviction, they did prosecutors a big favor.

Since jurors came to their conclusion applying the legal position put forth by Andersen — that all jury members had to agree on the same individual's guilt in order to convict the firm — it will be monumentally harder for Andersen's fine attorneys to overturn the verdict on appeal, Cohen explains.

Temple wrote lead Enron auditor David Duncan that he should remove her name from a memo because it would increase "the chances that I might be a witness, which I prefer to avoid."

The memo was Duncan's summary of a conference call about an Oct. 16 earnings release by Enron that revealed accounting problems. The energy trading company characterized some issues as "nonrecurring" when, Duncan said, the opposite was true.

"It was a perfect illustration of Nancy Temple and others getting rid of drafts and sanitizing the record," Weissmann said. "That document was devastating."

Prosecutors spent a month presenting testimony from employees, federal regulators and FBI agents. They also showed jurors mounds of documents, e-mails and handwritten notes they said proved Andersen had covered up a scandal.

Their key argument was that Andersen, just before regulators began investigating Enron, suddenly promoted a little-used document policy as a signal to its Enron audit team to begin destroying files.

The star prosecution witness was Duncan.

Duncan pleaded guilty to obstructing justice in April and spent nearly a week on the witness stand, telling jurors that he had signed an agreement with Andersen to present a united front that neither did anything wrong.

He said he reneged on the agreement after a lot of "soul searching."

"I obstructed justice," he testified. "I instructed people on the (Enron audit) team to follow the document retention policy, which I knew would result in the destruction of documents."

Duncan could get up to 10 years in prison at sentencing Aug. 26, though prosecutors are expected to seek a lesser sentence. His lawyer, Robert Giuffra, said Duncan is still cooperating with the government.