The U.S. Supreme Court yesterday agreed to consider Arthur Andersen LLP's appeal of the obstruction of justice conviction that pushed the venerable accounting firm into collapse.
The 2002 conviction for tampering with documents related to client Enron Corp. injected powerful momentum into the federal government's effort to crack down on fraud at companies engaged in accounting abuses in the late 1990s. It also sent Andersen into a tailspin from which the company never recovered, eliminating the jobs of more than 28,000 U.S. employees, disbanding an 89-year-old business that reviewed the books of 1,300 public companies, and sharply narrowing the options of clients in the market for accounting firms large enough to perform international audits.
Andersen workers in 2002 protested the firm's indictment. More than 28,000 lost their jobs when Andersen collapsed.
(Daniel Acker -- Bloomberg News)
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Bringing criminal charges against Andersen was controversial for prosecutors, as employees clad in orange T-shirts marched on Capitol Hill in protest and lawmakers such as House Financial Services Committee Chairman Michael G. Oxley (R-Ohio) declared it was a mistake for the government to indict the entire company rather than a few culpable individuals. Later, outside authorities such as the General Accounting Office (now known as the Government Accountability Office) issued reports warning of anti-competitive consequences in the audit industry after one of the nation's five biggest accounting firms got put out of business.
Now the nation's highest court will revisit the case. At issue in the appeal is whether the Houston-based trial judge's instructions to jurors in the trial were too broad.
Paul D. Kamenar, senior executive counsel at the Washington Legal Foundation, said the Andersen case has wide implications for companies trying to guide workers about the kinds of work-related papers that need to be preserved or destroyed. The foundation filed a friend-of-the-court brief, on behalf of the U.S. Chamber of Commerce, asking the Supreme Court to hear Andersen's appeal. The foundation argued that the conviction "sent a chill through every corporation that has a document retention policy," Kamenar said yesterday.
But legal experts said the effect of any ruling on future cases may be minimal because the Sarbanes-Oxley Act, a corporate accountability measure Congress passed soon after Andersen's conviction in 2002, created a new obstruction of justice count that resolves most of the company's objections to "vague" language in the original law.
Chicago-based Andersen now employs fewer than 200 lawyers and administrative staffers, who spend most of their time defending the company against scores of ongoing lawsuits. If the Supreme Court overturns the conviction, Andersen could better defend itself against billions of dollars in civil claims filed by shareholders and in disputes with insurers who have used the criminal conviction to deny the firm coverage.
"The firm is pleased that the Supreme Court has agreed to consider its case, given the importance of the legal issues and the potential impact on businesses and individuals in the United States," Patrick Dorton, an Andersen spokesman, said in a telephone interview.
Bryan Sierra, a spokesman for the Justice Department's Criminal Division, declined comment. The team of lawyers that prosecuted Andersen continues to bring indictments against former Enron officials and their professional advisers, and it has charged nearly three dozen people with crimes in connection with the Houston energy trader's demise.
Enron was the first in a series of companies to disclose multibillion-dollar accounting schemes and self-dealing by insiders that badly bruised investor confidence and touched off cries for widespread corporate reforms.
The Justice Department previously said that it took a hard line with Andersen because of the accounting firm's record of allegedly shoddy work, including failed audits at Waste Management Inc. and Sunbeam Corp. that cost investors millions of dollars. Andersen was operating under a form of corporate probation at the instigation of the Securities and Exchange Commission at the time of the Enron debacle.
During a six-week trial, prosecutors argued that Andersen's leaders desperately feared a spate of costly shareholder lawsuits as Enron descended into financial collapse. Shortly after receiving notice about problems at Enron, including what she described in notes as a "highly probable" SEC investigation, Andersen lawyer Nancy Temple sent out an e-mail message reminding employees to follow the company's document retention policy, which called for the destruction of old and extraneous papers.
Accountants in Andersen's Houston office touched off a massive campaign to shred documents, destroying more than two tons of paper and deleting thousands of e-mails in a few weeks in October 2001, the government argued.
Andersen argued that U.S. District Judge Melinda Harmon gave improperly broad instructions to the jury on the obstruction charge and that prosecutors failed to prove that the document tampering took place after the SEC formally opened a probe into Enron's finances.
The conviction was upheld in June 2004 by the U.S. Court of Appeals for the 5th Circuit. Andersen petitioned the Supreme Court for review in September, a move that the high court granted yesterday.
The Supreme Court will hear the case sometime in April, with a decision to come before the term ends this summer, lawyers involved in the case said.
"I think Arthur Andersen may have a final bit of justice here," Arthur W. Bowman, a longtime accounting industry consultant based in Atlanta, said in a telephone interview. "But there's no way they'll ever bring the firm back to life."
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