- The Washington Times - Tuesday, May 31, 2005

The Supreme Court unanimously overturned Arthur Andersen’s landmark conviction yesterday, dealing a blow to the Justice Department’s strategy for pursuing corporate fraud.

The high court said the jury deliberating the case against the blue-chip accounting firm was not properly instructed to find proof that the company knew it did something wrong by destroying internal records of questionable accounting deals involving Enron Corp.

The high court’s quick dismissal of one of Justice’s most high-profile corporate fraud cases was a vindication for Andersen, which was driven out of business by the rare conviction of the entire corporation in June 2002, putting about 28,000 employees out of work.

While the decision overturns a $500,000 fine and may revive the firm’s reputation, it is not expected to resurrect the Andersen business.

“It’s cold comfort,” said Brian Chilton, senior counsel at Foley & Lardner, who added the high court’s move will make it harder for the government to prove and win witness-tampering cases in the future.

Above all, the Justice Department will have to prove businesses had “corrupt” intent when they destroy documents, he said.

The jury in the Andersen case received instructions from the U.S. District Court in Houston that “simply failed to convey the requisite consciousness of wrongdoing,” said U.S. Chief Justice William H. Rehnquist, who wrote yesterday’s 9-0 opinion.

Andersen was charged with “witness tampering” for “corruptly persuading” its employees to destroy tons of paper and thousands of e-mail messages at the same time the Securities and Exchange Commission was readying an investigation into questionable deals by its auditing client, Enron.

The Justice Department maintained that Andersen’s actions obstructed justice, but the company insisted that it was only instructing its employees to follow an established policy to expunge documents after completing an audit or other client business.

Chief Justice Rehnquist sided with the company on several points, noting that it is common for businesses to have document-retention policies. “It is, or course, not wrongful for a manager to instruct his employees to comply with a valid document-retention policy.”

In addition, the jury instructions “diluted the meaning of ‘corruptly’ so that it covered innocent conduct,” the chief justice said.

“It’s a tremendous vindication” for the firm and its employees, said Rusty Hardin, who served as Andersen’s lead attorney during the trial. “They never intended to do anything wrong. They certainly never intended to obstruct justice.”

Acting U.S. Assistant Attorney General John C. Richter said the Justice Department was disappointed by the ruling but has not decided whether to seek a new trial.

The decision to indict Andersen in 2002 reflected Justice’s determination that the firm destroyed documents “in anticipation of an investigation,” he said.

The government had substantial circumstantial evidence that Andersen attorneys knew an SEC investigation of the Enron affair was likely when they instructed Andersen employees to cleanse their files, said Mr. Chilton.

While the company had a long-standing policy of eliminating old documents, it was spotty in applying that policy and appeared to suddenly step up enforcement after the attorneys concluded that an SEC investigation was probable, he said.

The government’s case against Andersen was “very strong,” Mr. Chilton said, because the chain of events showed Andersen “never really worried about document retention until the Enron matter.

Still, the court’s ruling is a big relief for businesses that had been fearful of discarding files even innocently for fear of later being prosecuted by Justice, he said.

“It returns to what everyone thought the law was before the Arthur Andersen indictment,” he said.

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