- The Washington Times - Tuesday, June 18, 2002

After years in which the once-thriving accounting firm Arthur Andersen repeatedly skirted the rules for the convenient benefit of its clients, from whom Andersen reaped tens of millions of dollars in "consulting" fees, the law has finally caught up with the firm. Over the weekend, following a six-week trial and 10 days of deliberations, a federal jury in Houston convicted Andersen of obstructing justice for its role in the unfolding Enron bankruptcy debacle. The conviction of Andersen, for all practical purposes, which had already imploded since a grand jury indicted the auditing firm in March, means the firm will suffer the equivalent of the "death penalty." After its conviction, Andersen informed the Securities and Exchange Commission (SEC) that Andersen will cease conducting audits of public companies by the end of August.

While the consequences will be severe for tens of thousands of Andersen employees, the vast majority of whom never worked on the Enron account, there is still little reason to shed tears for Andersen's demise. The firm was out of control. Referring to previous litigation in recent years between the SEC and Andersen involving auditing failures of Sunbeam and Waste Management, a lead prosecutor in the current case explained, "This was a management team that already had two strikes against them." Indeed, Andersen never even bothered to discipline the auditors penalized by the SEC in the Waste Management fiasco. Worse, Andersen assigned one of those auditors the task of developing the firm's document-retention policy, which figured prominently in the Enron-related trial.

Andersen and its aggressive apologists are bitterly complaining that the conviction ultimately rested upon what they claim to be relatively minor changes to a draft memorandum. As it happens, the jury concluded that those changes were clearly designed to thwart the SEC's certain investigation into Andersen's role in Enron's eventual collapse. In fact, as the trial demonstrated, Andersen's auditing of Enron, which paid the firm tens of millions of dollars annually for "consulting," was completely out of control. For example, as far back as 1997, Andersen auditors found more than $50 million in questionable accounting decisions at Enron, but the auditor conveniently failed to deem the matter "material." Tellingly, the supposedly minor changes in the 2001 draft memorandum, for which the jury just found Andersen guilty, involved an Andersen corporate attorney in Chicago telling the firm's lead auditor of Enron to "delet[e] some language that might suggest we have concluded the [Enron earnings] release is misleading" precisely what the lead auditor had, in fact, concluded.

Finally, consider the reaction of the SEC, which will likely be cleaning up after Andersen well into the future as it investigates the firm's questionable audits of other companies, including world-class fiascos at Dynegy, WorldCom, Global Crossing and Qwest. "The commission is deeply troubled by the underlying events that resulted in Andersen's conviction," the SEC declared in a statement, "especially insofar as the jury's verdict reflects the jury's conclusion that Andersen engaged in conduct designed to obstruct SEC processes." Andersen is a serial offender. And it deserves its fate.

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