Lawyers for the Department of Justice and Arthur Andersen LLP gave opening arguments Tuesday in U.S. District Court in Houston regarding the obstruction of justice charge that has been brought against the Big Five firm.
Andersen began the day with bad news from Judge Melinda Harmon who decided to allow prosecutors to introduce testimony about Andersen's prior accounting scandals and subsequent settlements regarding Sunbeam Corp. and Houston-based Waste Management, Inc. Over strenuous objections from Andersen's lawyers that details about Sunbeam and Waste Management would unfairly prejudice and confuse the jury, the prosecution won their argument that information about these earlier investigations would demonstrate to the jury that Andersen had motive to cover up information relating to the possible mishandling of the Enron audit.
Andersen's defense attorney Rusty Hardin described the firm's document retention policy in his opening argument, explaining that the documents that were shredded were a result of standard procedure. "Shredding is not a dirty word in the accounting world. That's the way you get rid of a client's confidential information," said Mr. Hardin.
Testimony by Securities and Exchange Commissioner Thomas Newkirk, who supervised the Sunbeam and Waste Management investigations, included information that the SEC has placed Andersen on a form of probation last June that forbade the firm from participating in any future wrongdoings. A violation of that probation could result in a revocation of Andersen's right to practice.
The prosecution argued that the fear of this probation caused Andersen to act hastily in destroying Enron-related documents that could implicate the firm in additional securities fraud.
On cross-examination, Andersen attorney Rusty Hardin forced Mr. Newkirk to admit that he knew nothing about the Enron and Andersen case and that he had no evidence that any Andersen employee on the Enron audit staff destroyed documents because of concern over the earlier cases or the SEC probation.
Andersen faces a potential $500,000 fine and five years of probation if the firm is convicted of criminal wrongdoing. In addition, there is the possibility that the firm could be fined up to twice the amount of any gains or damages that the court determines were caused by actions of the firm.