2005-01-08

Andersen gets day in court


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The firestorm surrounding Enron and their accounting firm, Arthur Andersen has long since died, but one battle goes on. The obstruction of justice case which reduced AA from an accounting firm tens of thousands strong to a skeleton legal crew will be heard on appeal by the U.S. Supreme Court. At issue, the word "corruptly."

The case:

  • Massive accounting irregularities hammer Enron and an SEC investigation begins.

  • Prior to the SEC issuing a subpoena or making any formal move against AA, one of the firm's attorneys advises strict adhearance to document retention policies - i.e. destroy everything but what is necessary to support the audit.

  • Massive document shredding and e-mail deleting ensues.

  • The SEC subpoenas AA for documents related to their audit of Enron. The destruction ends.


Was the destruction of documents legal or not? The firm's policy technically allowed them to dispose of the excess documentation, but in practice they didn't normally do so. To suddenly follow policy to the letter for one client, shortly before that client and your firm are indicted is suspicious.

Under the law, it is a crime for someone to "corruptly persuade" another to, among other things, destroy documents with the intent of making them unavailable in official proceedings.

AA objected to the initial judge's instruction to the jury that the government "did not have to prove that the defendant knew its conduct was illegal." AA attornies argued in their appeal that " 'corruptly' had to mean 'at least conscious wrongdoing.' "

I'm really torn here. First of all I believe the initial judge was out of bounds. In some cases "corruptly" may be vague enough to cause problems. Here I agree with AA's lawyers in that knoweldgable wrongdoing is implied in the use of the word.

What I have trouble with is how AA could argue that they weren't knowingly circumventing the law. What other explanation could there be for suddenly undertaking such an operation?

I'll be curious to hear what the Supreme Court has to say on this one.

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