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Arthur Andersen Case

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Carrie Johnson
Washington Post Staff Writer
Wednesday, June 1, 2005; 12:00 PM

The Supreme Court's unanimous rebuff of the 2002 conviction of Arthur Andersen for destroying Enron Corp.-related documents is a major defeat for the Department of Justice, which prosecuted one of the nation's largest accounting firms against the advice of numerous critics.

The ruling comes too late to save the firm itself, however. Many Andersen accountants and staffers have scattered to rival companies; only about 200 employees remain to perform administrative and legal duties, mostly related to shareholder lawsuits.

Post reporter Carrie Johnson , who covered the firm's trial in Houston in 2002,  answered reader questions from Birmingham, Ala., where she was awaiting a verdict in the trial of former HealthSouth chief Richard M. Scrushy.

Read the story: Court Overturns Arthur Andersen Conviction (Post, May 31)

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Carrie Johnson: Who would have thought, three humid summers ago, that one of the nation's biggest accounting firms would collapse amid a criminal conviction that would later be overturned by the U.S. Supreme Court. Not me. I covered Andersen's trial in Houston in 2002 (seems so long ago, in the annals of recent corporate fraud cases) and I'm eager to hear all of your thoughts, impressions, and questions about Monday's high court ruling. Fire away.

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McLean, VA: So whatever happened to (and what happens now for) Nancy Temple, who was the Anderson in-house lawyer whose e-mail was cited by the prosecutors and the jury as the key evidence for obstruction. Does this represent some vindication for her.

Carrie Johnson: Nancy Temple turned out to be a key figure in the 2002 trial even though she never testified. Jurors said after the verdict that they had agreed to convict Andersen in part because of instructions Nancy Temple gave Andersen audit partners. Temple was investigated but criminal charges against her have not been brought.

She left Andersen and is now working as a lawyer in Chicago. Her attorney did not return calls for comment after yesterday's Supreme Court rulings.

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Greenville, SC: The District Court Judge who wrote the jury instructions in the Andersen case is obviously incompetent and possibly corrupt.

So why doesn't the Washington Post have the guts to give its readers his name and put his picture on the front page.

Could it be that Post reporters fear they will lose "access" with judges and other high government officials.

Carrie Johnson: Melinda Harmon is the District Court judge who handled the Arthur Andersen criminal case. The Supreme Court yesterday took issue with the instructions she gave jurors but it did not cast a negative light on her legal skill or integrity. Harmon continues to sit on the U.S. District Court in Houston. Federal judges enjoy lifetime tenure and there is no evidence she behaved inappropriately during the trial.

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Washington DC: I'm a native of Birmingham and a childhood friend of Enron's Andy Fastow. I'm wondering, the judge has been candid that she had no background in criminal work, having been vouched for as a local law professor for the bench by the only woman to serve on the Alabama Supreme Court. How's Karen O. Bowdre (great name) doing. Why did she give the jury a 75 page form.

Carrie Johnson: I take it this is a question about the ongoing criminal trial of former HealthSouth chief executive Richard Scrushy. The jury instructions and the verdict form Judge Bowdre gave have become an important issue in the trial. Some legal experts believe there may be too much information for jurors to wade through. That could end up helping the defense, particularly if jurors do not understand the instructions or the scope of their task.

Judge Bowdre admitted in a recently released transcript that she was new to criminal law and that she might rely on lawyers in the case to get up to speed. She has received mixed reviews so far.

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Washington, DC: As a former Andersen employee and one of the 28,000 people that unjustly lost their jobs, I would like to know when the government is going to admit it recklessly destroyed careers and that those 28,000 people deserve retribution, in addition to an apology.

Carrie Johnson: You could be in for a long wait. Justice Department officials said yesterday they will examine the Supreme Court ruling and decide whether to re-try the Andersen firm. The government says it moved swiftly against Andersen because it believed the firm was destroying thousands of documents to hinder regulatory investigations. The decision to charge Andersen with a crime remains controversial and yesterday's ruling only feeds the flames.

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Washington DC: Good afternoon,

This is more of a comment than a question. It really is a shame that the government felt the need to destroy a company and risk the livelihoods of 28,000 American workers merely to prove a point. I'm a proud alum of Andersen's DC-based government practice, and am proud to have worked for such a great firm. I still count some of my ex-colleagues as my closest friends and have remained in touch even as we've spread out across the globe.

Thanks

Carrie Johnson: Government lawyers are particularly concerned about crimes that hamper investigators, whether those be perjury or destroying documents. That's one reason the U.S. attorney in New York cited for prosecuting Martha Stewart.

Some prosecutors, including New York Attorney General Eliot Spitzer have publicly said they will think twice about bringing criminal charges against a company because of the job losses that could result. Since the Andersen conviction, federal prosecutors increasingly have worked out deferred prosecution deals that allow companies to remain in business.

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Southern Maryland: It's really sad that this Enron mess brought down a firm like Arthur Andersen. I worked there as a secretary during the mid-1970's. This was before computers -- we typed our butts off with IBM Selectric typewriters. It was like working in a hospital emergency room. We all worked weekends, holidays, and into the early morning hours on client matters.

The accountants were honest, extremely hard-working, and civic-minded. I'm proud to have been a part of its history, and saddened when a few bad apples brought about its collapse. One manager used to say -- AA and Co. wasn't built by one man, but one man can bring it down.--

Carrie Johnson: One of the most poignant consequences of the Andersen conviction involved dedicated support and administrative staff being set adrift. Some of those people had harder times finding new jobs than the accountants at the firm. Andersen once had a reputation of being beyond reproach, but its troubles at Enron and its work at Worldcom, Global Crossing and other firms that suffered financial meltdowns has dimmed its luster.

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Arlington, VA: Is there any hope now for raising the Andersen firm from the dead.

Carrie Johnson: That's extremely unlikely. Andersen now has fewer than 200 employees. Most of them are working to resolve class-action lawsuits stemming from Andersen's work for Enron and other clients. The vast majority of the firm's partners defected in 2002 to Andersen's four largest rivals. Some of them started their own accounting, consulting and corporate governance businesses.

Andersen is wrapping up its affairs. It's unclear whether the firm's partners will get back any of the capital contributions they put in after all the civil lawsuits are resolved.

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Alexandria, Va.: Will the Feds retry the case.

Carrie Johnson: That is the 64,000 questions. Assistant Attorney General John Richter yesterday said prosecutors were reviewing their options. It's unclear whether the government wants to expend more resources to prosecute an essentially defunct firm. But in other corporate scandal cases, prosecutors sometimes have made the decision to retry defendants after high-profile mistrials. Those cases include those of investment banker Frank Quattrone, Adelphia executive Michael Rigas, and Tyco leader Dennis Kozlowski.

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Washington, D.C.: Was any part of the Andersen case key to the upcoming prosecution of Ken Lay.

Carrie Johnson: Andersen was prosecuted for the relatively narrow offense of destroying and tampering with documents related to its work for Enron. In the course of the trial, prosecutors introduced evidence about some of Enron's off-balance-sheet partnerships that were used to hide debt and ultimately helped bring down the company.

Ken Lay was mostly charged with hyping the company to analysts and employees during its last six months of life in 2001. The government does not accuse him of direct responsibility for those partnerships. The key witnesses against Ken Lay have not yet made their debut in court.

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Arlington, Va.: Based on my extensive reading about the Enron scandal, Andersen was clearly guilty of obstructing justice, not to mention conspiring with Enron officials to cook the books. So with the Supreme Court ruling yesterday, what does it all mean for the future of corporate accountability and Sarbanes-Oxley. Are we headed back to an era when big companies can pull these kind of shenanigans and get off scot free.

Carrie Johnson: The Supreme Court ruled narrowly yesterday that the jury instructions used in the Andersen trial were insufficient. The court did not take a position on the ultimate guilt or innocence of Andersen. Prosecutors introduced evidence about what firm leaders intended to do in October 2001, including testimony from Andersen partner David Duncan.

It's unclear whether the government will retry Andersen at this time, but I think it is safe to say that some of the changes lawmakers and regulators have made since the company's collapse have taken hold for good. Chief among them is an oversight board that monitors the work of accounting firms and has the power to discipline them.

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Northern Virginia: So what will be the next episode in the ongoing corporate-prosecution drama.

Carrie Johnson: The Andersen case was the first for the Justice Department's Enron task force, but it is hardly the last. Prosecutors there have secured guilty pleas from top officials, including Enron finance chief Andrew Fastow. Last year they won convictions against Merrill Lynch executives for engaging in sham deals with Enron. Currently on trial are several officials in Enron's Internet unit, and the biggest case of all is scheduled to begin in January 2006 when former chief executives Kenneth Lay and Jeffrey Skilling face trial.

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Sorry about your jobs: But lets face facts, if that's the defense, then we might as well give large corporations' executives carte blanche to steal, cheat, and defraud. After all, it will only hurt their employees to hold them accountable.

Look, if you looked the other way because you were afraid of employment repercussions, it's your fault. If you winked at sleazy behavior by clients because it helped get consultants in, it's your fault. If you didn't report wrongdoings when you found them, it's your fault. If you kept a client on you knew was playing games with their books, because of the revenue stream, it's your fault. If you didn't and got hosed, but knew co-workers who were, and said nothing, it's your fault.

Carrie Johnson: The Enron scandal exposed serious fault lines across the country's system of corporate governance. Accountants, investment bankers, lawyers, and Wall Street analysts all fell down on the job. The SEC and the Justice Department continue to examine the role these gatekeepers failed to play at Enron and other companies that collapsed.

One of the difficult things for many Andersen employees to swallow is that they suffered because of the work of the firm's Houston office and a few leaders at the top of its structure.

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Ashburn, VA: People lose their jobs every day in America -- why should we feel sorry for the ones at AA who lost theirs. I am an ex-Big 8 employee and my experience was that the accounting firms were very often in bed with the client management -- and I think that the AA/Enron incident (among others) is calling the accounting firms to task. I say good.

Carrie Johnson: I am sure the folks at the SEC and the Public Company Accounting Oversight Board are nodding their heads in agreement right now. It's clear that Andersen was far from the only accounting firm to get too close to its clients in a race to take in lucrative consulting business. The 2002 Sarbanes-Oxley Act helped to put limits on the kinds of work auditors can do for clients, and there are reports that accounting firms are growing more independent. But at an SEC round table earlier this year, one corporate leader talked about a firm calling a partner off an account at the request of clients ... so these problems may not be entirely behind us.

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D.C.: How can readers suggest that Anderson is an innocent victim in the Enron scandal. As with many large accounting firms, employees work long hours because management deliberately under staffs, worries more about gaining customers and less about accurate report, and pays lower-end staffers less money per work hour than McDonalds employees. Let this corporate collapse send a message to the rest of the audit industry. We're watching you.

College Grad Who's Glad

Carrie Johnson: I don't know enough to comment about Andersen's wage structure, but I do know the company already was in hot water before Enron came along because of work it did for Sunbeam and Waste Management. Prosecutors cited Andersen's faulty audits in those cases during the firm's criminal trial and they looked at Andersen as a repeat offender.

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Tampa, FL: I have 3 comments. (1) Most federal judges have little or no background in criminal law because they usually work in business/corporate law firms where they gain the political clout and make the campaign contributions necessary to be appointed to the federal bench. (2) As for the AA employees who lost their jobs, why should I care any more for them than for the tens of thousands of innocents who lose their jobs because their CEO decides to cash out by selling the company. Sorry, but the former AA employees are no more innocent and deserve no more sympathy than the former Bank One and Fleet Bank employees fired after their companies merged. Mergers in which the selling and buying CEOs were compensated quite handsomely. (3) As a CPA, I found it telling and outrageous that AA allowed their client service teams to overrule the firm's technical experts in Chicago. That was structural malpractice.

Carrie Johnson: One of the most dramatic parts of the trial was hearing from Andersen partners whose advice was set aside under pressure from Enron officials. It now appears that happened not just at Andersen but also at other firms during the Internet boom years. Regulators say they are now scrutinizing the tone at the top of accounting firms to try to make sure those things don't happen any more.

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washingtonpost.com: Carrie Johnson had to sign off early to follow a breaking story. Thanks for all of your questions and comments, and we're sorry we didn't have time to answer all of them.

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Washington DC: What impact will this have on the big 4 and other firms' ability to hire auditors.

Carrie Johnson: Some big companies say they have fewer choices now since Andersen has gone out of business. But mid-size accounting firms are aggressively moving to pick up clients and increase their market share.

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