US court overturns Arthur Andersen conviction

The United States Supreme Court on Tuesday overturned the conviction of the Arthur Andersen accounting firm for destroying Enron Corporation-related documents before the energy giant’s collapse.

In a unanimous opinion, justices said the former Big Five accounting firm’s June 2002 conviction was improper. It said the jury instructions at trial were too vague and broad for jurors to determine correctly whether Andersen obstructed justice.

“The jury instructions here were flawed in important respects,” Chief Justice William H Rehnquist wrote for the court.

The ruling is a setback for the Bush administration, which made prosecution of white-collar criminals a high priority following accounting scandals at major corporations. After Enron’s 2001 collapse, the Justice Department went after Andersen first.

Enron crashed in December 2001, putting more than 5 000 employees out of work, just six weeks after the energy company revealed massive losses and write-downs.

Subsequently, as the Securities and Exchange Commission (SEC) began looking into Enron’s convoluted finances, Andersen put in practice a policy calling for destroying unneeded documentation.

Government attorneys argued that Andersen should be held responsible for instructing its employees to “undertake an unprecedented campaign of document destruction”.

But in his opinion, Rehnquist noted that jurors were instructed to convict Andersen if the accounting firm had an “improper purpose”, such as an intent to impede or subvert fact-finding in an “official proceeding”.
He noted jurors were instructed to convict, even if Andersen mistakenly thought it was acting legally.

At trial, Andersen argued that employees who shredded tonnes of documents followed the policy and there was no intent to thwart the SEC investigation.

The probe into Andersen led to just one guilty plea, from the firm’s former top Enron auditor, David Duncan. But the conviction of the Chicago firm forced it to surrender its accounting licence and stop conducting public audits. About 28 000 workers had to find other jobs, and the company was left a shell of its former self.

A ruling against Andersen would have had onerous consequences for businesses, whose discarding of files is an everyday occurrence. Experts say companies would have to keep all files for fear that any disposal, however innocent, could subject them to potential prosecution.—Sapa-AP

Client Media Releases

SA moves beyond connectivity
Education student receives prominent awards
VMware is diamond sponsor of ITWeb's Cloud Summit 2019