Andersen Indicted on Criminal Charges

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The U.S. Department of Justice on Thursday announced that a federal grand jury has indicted Big Five firm Andersen on charges of obstruction of regulatory and criminal proceedings as a result of document destruction relating to the audit of Enron Corporation.

The indictment claims that Andersen withheld evidence sought by the government in its investigation of Enron and that Andersen employees were instructed by "Andersen partners and others to destroy immediately documentation relating to Enron and told to work overtime if necessary to accomplish the destruction."

Andersen responded with a statement in which the firm said "The action taken against Arthur Andersen, LLP by the U.S. Department of Justice today is without precedent and an extraordinary abuse of prosecutorial discretion." The statement also referred to the indictment as "a gross abuse of government power."

In response to the indictment, the Securities and Exchange Commission (SEC) issued regulatory actions "to assure a continuing and orderly flow of information to investors and U.S. capital markets and to minimize any potential disruptions that may occur as a result of the indictment." The SEC stated that Andersen will be required to provide audit clients with representations concerning audit quality controls, including "the continuity of Andersen personnel working on the audit, the availability of national office consultation, and the availability of personnel at foreign affiliates of Andersen to conduct relevant portions of the audit." As long as Andersen complies with these assurances, the firm will be able to continue to provide audit services to publicly held companies.

Andersen's lawyers claim the federal indictment "entirely lacks substance" and that the government allegations presented in the indictment are either "wrong or grossly misleading."

Analysts speculate that the indictment could result in the SEC banning Andersen from signing off on audits, which could ultimately lead to the dissolution and break up of the venerable accounting firm. Others contemplate the possibility that using Andersen to demonstrate that wrongdoing will not go unpunished might result in improved quality of auditing and a benefit in the long run to investors.

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