Court overturns Arthur Andersen conviction - East Valley Tribune: Business

Court overturns Arthur Andersen conviction

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Posted: Tuesday, May 31, 2005 11:52 am | Updated: 9:20 am, Fri Oct 7, 2011.

WASHINGTON - The Supreme Court on Tuesday overturned the conviction of the Arthur Andersen accounting firm for destroying Enron Corp.-related documents before the energy giant's collapse.

In a unanimous opinion, justices said the former Big Five accounting firm's June 2002 obstruction-of-justice conviction - which virtually destroyed Andersen - was improper. The decision said jury instructions at trial were too vague and broad for jurors to determine correctly whether Andersen obstructed justice.

"The jury instructions here were flawed in important respects," Chief Justice William H. Rehnquist wrote for the court.

The ruling is a setback for the Bush administration, which made prosecution of white-collar criminals a high priority following accounting scandals at major corporations. After Enron's 2001 collapse, the Justice Department went after Andersen first.

Acting assistant Attorney General John C. Richter said the Justice Department was disappointed with the decision and was considering whether to re-try the case.

"The Justice Department's decision to charge Arthur Andersen was based at the time on the determination that the substantial destruction of documents in anticipation of an investigation by the Securities and Exchange Commission violated the law," he said. "We remain convinced that even the most powerful corporations have the responsibility of adhering to the rule of law."

Patrick Dorton, a spokesman for Andersen, said the company was pleased that the ruling "acknowledges the injustice that has been done to Arthur Andersen and its former personnel and retirees."

"This decision represents an important step in removing an unjustified cloud over the professionalism and integrity of the people of Arthur Andersen," he said in a statement.

Enron crashed in December 2001, putting more than 5,000 employees out of work, just six weeks after the energy company revealed massive losses and writedowns.

Subsequently, as the Securities and Exchange Commission began looking into Enron's convoluted finances, Andersen put in practice a policy calling for destroying unneeded documentation.

Government attorneys argued that Andersen should be held responsible for instructing its employees to "undertake an unprecedented campaign of document destruction." It said Andersen was guilty under an obstruction law that makes it a crime to "corruptly persuade" others to destroy documents.

But in his opinion, Rehnquist noted that it is not necessarily wrong for companies to instruct employees to destroy documents, even if the intent is in part to keep information from the government.

Like a mother who advises a son to invoke his right against compelled self-incrimination out of fear he might be convicted, "persuading" an employee to withhold information is not "inherently malign," Rehnquist wrote.

"The instructions also diluted the meaning of 'corruptly' so that it covered innocent conduct," Rehnquist said.

At trial, Andersen argued that employees who shredded tons of documents followed the policy and there was no intent to thwart the SEC investigation.

The probe into Andersen led to just one guilty plea, from the firm's former top Enron auditor, David Duncan. But the conviction of the Chicago firm forced it to surrender its accounting license and stop conducting public audits. Some 28,000 workers had to find other jobs, and the company was left a shell of its former self.

A ruling against Andersen could have had onerous consequences for businesses, whose discarding of files is an everyday occurrence. Experts say companies would have had to keep all files for fear that any disposal, however innocent, could subject them to potential prosecution.

According to Andersen attorneys, notes and drafts of documents were thrown away under the firm's document-retention policy in part because they were preliminary and could have been misconstrued.

Andersen's appeal was backed by the National Association of Criminal Defense Lawyers. It argued in a friend-of-the-court filing that broad characterization of "obstruction" used in the jury instructions would also unfairly punish criminal attorneys who advise their clients to withhold evidence in legal ways.

Such a broad reading could open defense lawyers and others to prosecution if they merely advise clients of their rights to assert legal privileges or review document retention policies, the criminal defense group said.

The case is Andersen v. U.S., 04-368.

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