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. Last Updated: 07/27/2016

U.S. Court Exonerates Andersen

WASHINGTON -- The U.S. Supreme Court overturned the 2002 criminal conviction of Enron's accounting firm Tuesday, nullifying with a single stroke one of the government's biggest victories in the corporate scandals that climaxed the bull market of the 1990s.

The court ruled unanimously that the Houston jury that found Arthur Andersen guilty of obstruction of justice had been given overly broad instructions from the federal judge who presided at the trial.

As a result of the faulty instructions, the justices ruled, the firm was convicted without proof that its document-shredding was deliberately intended to undermine a looming Securities and Exchange Commission inquiry in fall 2001. The judge should have instructed the jury that the law required the government to prove that Andersen knew it was breaking the law, the court ruled.

"Indeed, it is striking how little culpability the [judge's] instructions required," Chief Justice William Rehnquist wrote in the opinion for the court. "For example, the jury was told that, 'even if [Andersen] honestly and sincerely believed that its conduct was lawful, you may find [it] guilty.'" Legal analysts said the decision was a major setback to the Justice Department's corporate crime prosecutions.

"To lose a case like this is huge," said William Mateja, a former official of the Justice Department's corporate fraud task force. "Arthur Andersen was the poster child case of all the corporate fraud cases."

More broadly, some lawyers said the court's decision showed its sympathy for corporate America's view that companies should be freer to engage in routine document destruction -- often under the ironic title of "document retention policy."

That is important because the statute under which the Justice Department prosecuted Andersen was amended by Congress in the 2002 Sarbanes-Oxley law to make it easier for the government to prosecute wrongful document destruction.

"The Supreme Court may be using this as a vehicle to signal some concern" about Sarbanes-Oxley, said Henry Hu, a professor of corporate and securities law at the University of Texas.

But Mateja, now in private practice, said that Congress's intent to prevent improper document destruction was clear. "I'm still going to counsel clients to be extremely careful if and when they dust off document retention policies," he said.

Although a rebuke to the government, the court's decision is little comfort for Andersen and its former employees. The Chicago-based firm has a staff of only 200 left out of the 28,000 people who once worked there.

However, the company said the ruling might help the firm in its main remaining task: fighting shareholder lawsuits related to its work for Enron, Global Crossing and other clients.

"We pursued an appeal of this case not because we believed Arthur Andersen could be restored to its previous position, but because we had an obligation to set the record straight and clear the good name of the 28,000 innocent people who lost their jobs at the time of the indictment and tens of thousands of Andersen alumni, as well as to help secure a fair resolution of the civil litigation facing the firm," company spokesman Patrick Dorton said in a statement.

Acting Assistant Attorney General John Richter said in a statement that the Justice Department had charged Andersen because of its "determination that the substantial destruction of documents in anticipation of an investigation by the Securities and Exchange Commission violated the law."

Richter said prosecutors were continuing to examine the decision and would "determine whether to retry the case."

But legal analysts said that was unlikely, given the constitutional prohibition against double jeopardy and the tougher standard of proof required by yesterday's decision.

Andersen was in charge of auditing the books at Enron, the high-flying Houston energy conglomerate whose financial meltdown in fall 2001 wiped out the savings of thousands of employees and other small investors -- and politically damaged the Bush administration, with which Enron chairman Kenneth Lay had been close.

As Enron's collapse became public, Nancy Temple, a lawyer for Andersen, sent an e-mail on Oct. 19, 2001, reminding employees of the company's policy of routine document shredding. Two tons of documents were destroyed until the SEC formally notified Andersen on Nov. 9 that it was under investigation.

In prosecuting Andersen, the government argued that the shredding was done to prevent the SEC from finding out about such matters as Andersen's role in helping Enron puff up the reported returns of "off balance sheet" activities by units known as "Raptors."