Andersen Found Guilty

Big Five Firm Arthur Andersen, LLP has been found guilty of obstruction of justice in the U.S. District Court in Houston. The charge stems from Andersen's destruction of thousands of documents and e-mail messages relating to work performed for the now bankrupt energy giant, Enron. The court found that Andersen illegally destroyed the documents with the intent of thwarting an investigation by the U.S. Securities and Exchange Commission. On Saturday, June 15, the tenth day of deliberations, the jury met for only 30 minutes, then delivered its fatal verdict.

On Wednesday, June 12, the jury sent a message to Judge Melinda Harmon indicating that the group was "not able to reach a unanimous decision." Judge Harmon ordered the jury back to deliberations, telling them in a controversial order that too much money and time were at stake and they must work together to reach an agreement.

On Thursday, June 13, the jury sent a message to the judge asking for guidance on making their decision. The question they asked was: "If each of us believes that one Andersen agent acted knowingly and with a corrupt intent, is it for all of us to believe it was the same agent? Can one believe it was agent A, another believe it was agent B, and another believe it agent C?"

Over strenuous objections from the prosecution, Judge Harmon returned a message to the jury on Friday, June 14, telling them they could find Andersen guilty of obstructing justice even if they can't agree on which employee committed the crime. Andersen's lawyers requested a mistrial citing both of the judge's instructions as inappropriate and also arguing that allowing the jury to continue deliberations after so much time has passed would be "coercive." The request for the mistrial was denied.

On Saturday, the jury returned with its verdict, noting that in addition to finding Andersen guilty of the federal obstruction of justice charge, the group was able to agree unanimously that one person in the firm was responsible for committing the crime. The jury did not name that person.

Andersen has responded to the verdict with this published statement:

CHICAGO, June 15 -- Today’s verdict is wrong. In fairness to the jury, they were not permitted to know the full truth about what happened last fall as a result of the Justice Department’s actions during this trial. Arthur Andersen is planning to appeal the conviction based on flawed jury instructions and erroneous evidentiary rulings that precluded Andersen from presenting its entire defense.

The reality here is that this verdict represents only a technical conviction – based on the government’s theory of prosecution, any accounting firm or other business today could face a similar punishment for discarding documents. By this standard, any company could be prosecuted for following standard document disposal practices, before receiving a subpoena or even an informal request for documents from a third party, even when no person involved in the matter believed that anything they were doing was wrong.

It is clear that the government failed to uphold its moral responsibility to the public by indicting and prosecuting a firm of 26,000 innocent people that self-reported its findings, fully cooperated with the Department of Justice, the SEC, and Congress, and worked in good faith to find a solution that would have prevented this trial. Given these circumstances, there is no rationale for indicting a cooperating Arthur Andersen and destroying the firm as we knew it.

The AICPA has also issued its initial response:

June 15, 2002, New York - The finding of guilt in the Arthur Andersen, LLP (Andersen) obstruction of justice trial is a serious condemnation of the firm and its practices. The Executive Committee of the AICPA’s SEC Practice Section (SECPS), of which Andersen and other firms conducting audits of public companies are members, will meet early next week to discuss possible actions. The decision of the SECPS will be announced shortly thereafter.

This is the first time a criminal charge has ever been brought against a major accounting firm. Andersen faces a fine of up to $500,000 and up to five years' probation. In addition, the firm can be fined up to twice the amount of any gains or damages that the court determines were caused by the illegal action.

Little is left, however, of the once noble accounting firm. To date, 690 of the firm's 2,311 public company clients have taken their audit business to other firms, and the 28,000 U.S. workforce has been diminished to fewer than 10,000 as layoffs and departures have intensified since the Enron troubles began last fall. Most of the firm's international practices have been sold or combined with other accounting firms.

The firm now faces continuing lawsuits by federal agencies still conducting investigations and by shareholders and creditors of Enron, all of whom have been waiting with anticipation for this verdict.

Andersen: The Story So Far

Andersen: Updated List of Client Defections

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