The Supreme Court on Tuesday threw out the conviction that brought down once-proud accounting giant Andersen, unanimously rejecting the government’s interpretation of a federal witness tampering law it had charged the company with violating.
The court’s decision was swift, short and forceful. So clear were the legal issues for the justices that they took barely a month to decide the case, and they disposed of it in an opinion, written by Chief Justice William Rehnquist, that was just 11 pages long.
Chicago-based Andersen, the court said, was wrongly convicted of violating the federal witness tampering law after it reminded employees to follow company policies and destroy documents in the weeks before it received a government subpoena for records in the financial scandal involving Enron Corp.
The court agreed with Andersen’s arguments that the jury in the case had not been properly instructed on the law and, as a result, the company had been wrongly convicted.
“The jury instructions here were flawed in important respects,” Rehnquist wrote for the court.
The court said the jury should have been told it had to find that Andersen knowingly committed wrongdoing when its lawyers advised its employees to comply with its standard document retention policy.
“The jury instructions at issue simply failed to convey the requisite consciousness of wrongdoing,” the court said. “Indeed, it is striking how little culpability the instructions required.”
The government’s decision to charge Andersen with witness tampering, and the subsequent conviction, helped lead to the downfall of the company, once one of the leading and most respected accounting firms in the world. About 28,000 people in the U.S. lost their jobs when Andersen went under in 2002. It now has a staff of about 200, many of them left to handle shareholder lawsuits against Andersen. Many legal experts say that the reversal of the conviction could help Andersen’s defense in those cases.
In a statement, Andersen said the court’s decision “acknowledges the fundamental injustice that has been done” to the company and represents an “important step in removing an unjustified cloud over the professionalism and integrity” of its employees.
“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,” the company said in its statement.
The case now shifts the spotlight to the Justice Department, which came under harsh criticism Tuesday by business groups and criminal-defense lawyers who had long accused the government of overreaching in the case.
Acting Assistant Atty. Gen. John C. Richter said the department was disappointed in the ruling and was weighing whether to retry the case using different jury instructions. He also defended the department’s decision to charge Andersen with obstruction of justice in 2002, after its employees destroyed tens of thousands of documents when a federal investigation was on the horizon.
“The Justice Department’s decision to charge Arthur Andersen was based at the time on the determination that the substantial destruction of documents in anticipation of an investigation by the Securities and Exchange Commission violated the law,” Richter said. “We remain convinced that even the most powerful corporations have the responsibility of adhering to the rule of law.”
But criminal-defense lawyers and business groups said the Supreme Court ruling raised serious questions about the Justice Department’s decision to prosecute Andersen.
“It clearly is a decision that proves the argument people made back when this case was going on: that this was a rush to judgment,” said Barry Melancon, president and chief executive of the American Institute of Certified Public Accountants. “It doesn’t get anybody their job back. It doesn’t get the firm back. But if you were an employee of Andersen and you were some of the 20-plus thousand people affected, it proves you, as an individual, didn’t do anything wrong.”
Paul Kamenar, senior executive counsel at the Washington Legal Foundation, which filed court papers supporting Andersen, said it would be “foolish” for the Justice Department to retry the case in the face of the “stinging rebuke” it got from the court.
Some analysts said the case would have a limited effect beyond Andersen because of a federal law adopted after a raft of corporate accounting scandals several years ago, the 2002 Sarbanes-Oxley Act, which requires companies to retain their documents for longer periods. But they said that had the court adopted the government’s expansive interpretation of witness tampering, it could have raised serious implications for company lawyers seeking to give advice while facing possible investigations in the future.
The case against Andersen began in 2001, when Enron’s problems and accounting irregularities started becoming public. The giant energy trading company was Andersen’s largest client and relied on the firm for auditing, accounting and consulting advice. In October, Enron got a letter from the SEC informing it that the agency had begun an informal probe.
That month, lawyers for Andersen began reminding employees of the firm’s document retention policy, which called for employees to retain final memos and documents and destroy drafts and notes. Employees shredded tons of documents, stopping only when it received a government subpoena.
“Per Dave–No more shredding,” a secretary for Andersen partner David Duncan told employees at that point.
Before it was indicted, Andersen made the case to the Justice Department that an indictment was akin to a corporate death sentence. Its lawyers argued that the company had done nothing wrong and that the government’s interpretation of the law could make common corporate conduct a crime. Most companies have policies similar to Andersen’s on destroying and retaining documents.
But the government rejected Andersen’s arguments and indicted the company for witness tampering in March 2002. At that point, the company lost almost all of its major clients.
Andersen was convicted in June 2002 of witness tampering after a jury found that lawyers for the company “corruptly” persuaded employees to destroy documents that could be relevant to the looming SEC investigation. It took the jury 10 days to reach that verdict, which came after it announced it was deadlocked and ordered by the judge to resume deliberating.
After its conviction, Andersen surrendered all of its state accounting licenses and was essentially out of business.
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jgreenburg@tribune.com
