U.S. Supreme Court overturns Arthur Andersen conviction

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Wednesday, June 1, 2005

The U.S. Supreme Court on Tuesday overturned a witness tampering conviction against accounting firm Arthur Andersen LLP for destroying documents related to now-bankrupt energy giant Enron Corp. The verdict virtually put Andersen, once one of the largest accounting firms in the world and the fifth-largest in the United States, out of business.

In a unanimous opinion written by Chief Justice William Rehnquist, the court threw out the verdict due to serious flaws in the jury instructions. The Fifth Circuit Court of Appeals had upheld Andersen's June 15, 2002 conviction in Houston.

In the court's view, the instructions allowed the jury to convict Andersen without proving that the firm knew it broke the law or that there was a link to any official proceeding that prohibited the destruction of documents. "The jury instructions at issue simply failed to convey the requisite consciousness of wrongdoing," Rehnquist wrote. "Indeed, it is striking how little culpability the instructions required." Rehnquist's opinion also expressed grave skepticism at the government's definition of "corrupt persuasion"--persuasion with an improper purpose even without knowing an act is unlawful. "Only persons conscious of wrongdoing can be said to 'knowingly corruptly persuade,' " he wrote.

The ruling came very quickly, as oral arguments in the case had taken place on April 27. Justice Department attorneys claimed Andersen employees were instructed "undertake an unprecedented campaign of document destruction" in order to impede a Securities and Exchange Commission investigation into Enron's conduct. Deputy Solicitor General David Dreeben likened Andersen's behavior to "shredding its smoking guns."

However, Maureen Mahoney, arguing for Andersen, countered that the employees involved merely followed the company's policy on destroying unneeded documents, and that the shredding occurred before Andersen received a subpoena on November 8, 2001. She also claimed that under the government's legal definition of "corrupt persuasion," acquittal was virtually impossible.

The justices seemed to indicate which way they were leaning very early in oral arguments, as they peppered the government lawyers with hostile remarks.

Justice Antonin Scalia called the government's theory of prosecution "weird." Justice Sandra Day O'Connor was particularly troubled by the trouble the jury initially had sifting the evidence. "If this thing is so confusing," she asked, "how is a businessperson supposed to know? How is a lawyer supposed to know?"

Andersen's appeal was backed by the National Association of Criminal Defense Lawyers. In a friend-of-the-court brief, the association claimed that the government's broad definition of "corrupt persuasion" put defense lawyers at risk for prosecution simply for advising clients of their rights to assert legal privileges or review document retention policies.

Despite the ruling, which returns the case to the Fifth Circuit, it is highly unlikely Andersen will ever return as a viable business. It lost nearly all of its clients after its indictment, and was forced to shut down its American accounting practice due to federal laws that forbid convicted felons from auditing public companies. The firm still faces more than 100 civil suits related to its audits of Enron and other companies. Once 28,000 employees strong, the Chicago-based Andersen is now down to around 200 employees who are largely occupied with handling the civil suits and other details of winding down the partnership.

Sources

  • Associated Press. "Court Overturns Arthur Andersen Conviction" — ABC News, June 1, 2005
  • David Stout. "Conviction of Arthur Andersen is voided" — International Herald Tribune, June 1, 2005
  • Linda Greenhouse. "Justices Reject Auditor Verdict in Enron Scandal" — New York Times, June 1, 2005
  • Bill Mears. "Arthur Andersen conviction overturned" — CNN, June 1, 2005