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Andersen conviction overturned
Top court rules jury instructions flawed in Enron shredding case; other Enron cases to proceed.
May 31, 2005: 2:58 PM EDT
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WASHINGTON (CNN) - The Supreme Court Tuesday unanimously threw out the conviction of accounting firm Arthur Andersen, a symbolic victory for a nearly defunct company torn apart in a document-shredding case involving the fallen energy giant Enron.

In a 9-0 opinion, the justices concluded that "jury instructions at issue simply failed to convey the requisite consciousness of wrongdoing." Chief Justice William Rehnquist wrote the opinion, saying, "Indeed, it is striking how little culpability the instructions required."

The ruling is a major defeat for the federal government in its aggressive efforts to fight corporate wrongdoing, although some experts said it wouldn't significantly hamper future prosecutions.

The Justice Department said it was "disappointed" by the decision. Acting Assistant Attorney General John Richter said prosecutors "remained convinced that even the most powerful corporations have the responsibility of adhering to the rule of law."

He said department would decide later whether to retry the case.

The conviction had essentially forced Arthur Andersen out of business. The company, which is down to a couple of hundred employees handling the remaining legal issues facing it, said it was pleased by the decision even if it did nothing to bring the former Big Five accounting firm back to life.

"We are very pleased with the Supreme Court's decision, which acknowledges the fundamental injustice that has been done to Arthur Andersen and its former personnel and retirees," the firm said in a statement.

"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 protect the firm against a flood of civil lawsuits.

The opinion came unusually quickly after oral arguments in the case were held April 27, a clear sign the justices found the government's arguments quite unpersuasive. Lawyers for the Justice Department faced tough questioning from the bench during the arguments.

The ruling threw the case back to lower federal courts to sort out, but it gave no indication whether Andersen would be granted a new trial.

Andersen officials were convicted in June 2002 of obstructing justice for destroying thousands of documents related to the firm's work for Enron, the energy company that filed for bankruptcy in December 2001 after a huge accounting scandal made it a symbol of the corporate abuse and excess of the late 1990s.

Not a blow to other Enron cases

Despite the ruling, some experts on corporate corruption said they weren't sure the decision will make further white-collar prosecutions more difficult.

Robert Mintz former U.S. prosecutor and expert on white-collar crime, said the prosecution of Andersen was a little-used technique of indicting a whole company rather than an individual, which is more typical.

"It certainly is the first major blow to government efforts in this war on corporate fraud, and it comes at a time when they're finally getting ready to go up against the key Enron defendants," said Mintz. "But none of the charges against (ex-Enron CEO Jeffrey) Skilling and (ex-Enron Chairman Kenneth) Lay are the same type of obstruction charges that were at the heart of the Andersen case."

Mintz and Columbia Law School professor John Coffee, an expert on securities law, point out that since the Andersen prosecution, Congress has changed the law about obstruction, making it a simpler case for prosecutors to make. That also limits the impact of Tuesday's decision.

"The prosecutors saw the problem they were having in Arthur Anderson and so they got Congress to pass a much simpler statute," said Coffee.

Mintz is now a partner with the law firm of McCarter & English. His firm has not been involved in the Andersen case or subsequent Enron cases. He, Coffee and another corporate corruption expert said that the decision may slow the government from pursuing charges against an entire corporation in the future, which they say is not necessarily a bad thing for cracking down on corporate malfeasance.

"It's a very rare occurrence that an entire corporate culture is responsible for the charges they're being held accountable for," said Paul Hodgson, senior research associate at the Corporate Library, a corporate governance research group. "The prosecution of individuals is a far more effective way to go about discouraging this type of activity."

Hodgson said he doubts that having the Andersen conviction overturned will give those considering shredding documents or other questionable acts a green light to do so.

"What happened at Arthur Andersen was irreversible and is still enough of a danger signal to discourage firms from behaving in an overtly illegal or even suspicious way," he said.

Hodgson and Mintz said they believe Andersen might have survived if not for the conviction, while Coffee had doubts about the firm's viability once the Enron scandal was revealed.

For the key players in the Andersen-Enron case, click here

"I think most people will believe that Arthur Anderson died because (after Enron imploded) "more people thought having Arthur Andersen as your auditor was a bad sign rather than a good sign," he said.

Quick decision

In its case, the Justice Department likened Andersen's actions to "shredding its smoking guns." Deputy Solicitor General David Dreeben told the court, "It is the equivalent of sending someone to a crime scene, and wiping up the evidence before police get there with the yellow tape."

At issue for the court was whether the wording of jury instructions were improperly vague. Maureen Mahoney, attorney for Andersen, told the justices the government used improper legal definitions that made it impossible for the defendants to get a fair verdict.

The disagreement hinged on the meaning of the term "corruptly persuading" in federal criminal statutes and the legal standards for "criminal intent" -- words that were at the heart of Andersen's appeal.

In the ruling, Rehnquist noted prosecutors should have been more careful in their pursuit of Andersen. "Such restraint is particularly appropriate here, where the act underlying the conviction -- 'persuasion' -- is by itself innocuous. Indeed, 'persuading' a person 'to withhold' testimony from a government proceeding, or government official is not inherently malign.

Consider, for instance, a mother who suggests to her son that he invoke his right against self-incrimination ... or a wife who persuades her husband not to disclose marital confidences."

Coffee said the quick decision by the court is not a surprise.

"You don't (agree to hear a case) on this very narrow issue unless you're trying to rectify what you think is an injustice," he said.

Several jurors told CNN after their verdict in the Andersen criminal trial that they had concluded Andersen officials had suddenly ramped up a dormant document destruction policy in October 2001, shredding tens of thousands of Enron-related papers. It was done when Andersen executives acknowledged in memos they were aware of a probable investigation into Enron's accounting practices.

Andersen handled a large part of the financial accounting for Enron. The Houston-based energy company collapsed in late 2001, following allegations of widespread financial mismanagement. Corporate leaders were accused of exaggerating profits to stockholders and investors while hiding financial losses and debt.

Thousands of Enron workers lost their jobs and life savings -- much of which was invested in once high-flying Enron stock.

Andersen was once one of the top accounting companies in the United States, handling hundreds of top corporate auditing accounts. The company had defended its document retention policy as necessary financial housekeeping, and denied shredding files to block any investigation.

For more news on corporate scandals, click here.

-- from CNN Supreme Court Producer Bill Mears and CNN/Money writers Chris Isidore and Krysten Crawford  Top of page

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