Andersen Indicted for Obstruction of Justice in Enron Scandal

A federal grand jury on Thursday indicted Arthur Andersen for obstruction of justice in the Enron Corp. (ENE) scandal, the first criminal charges in the nation's biggest bankruptcy.

The one-count, eight-page criminal indictment announced Thursday was returned last week by a federal grand jury in Houston, where Enron is based, Deputy Attorney General Larry Thompson said.

Chicago-based Andersen — one of the Big Five accounting firms — had been given a 9 a.m. Thursday deadline to agree to plead guilty. The firm has admitted that some of its Houston employees destroyed Enron documents but that top management at headquarters in Chicago was unaware.

The indictment alleges that for a one-month span in October and early November, "Andersen ... did knowingly, intentionally and corruptly persuade" employees to "alter, destroy, mutilate and conceal" documents.

Thompson said Andersen also instructed employees in Portland, Ore., Chicago, and London to join in the shredding.

"The firm sought to undermine our justice system by destroying evidence," Thompson, the department's No. 2 office, said at a news conference.

The indictment alleges that dozens of large trunks were brought in to haul documents from Andersen's office in the Enron building to the accounting firm's Houston office in order to destroy tons of documents.

The indictment provided a possible motive for the shredding, saying that "Andersen and Enron ... improperly categorized hundreds of millions of dollars" as an increase in shareholder value. Just days before the destruction began, Enron corrected its books, reporting a $1.2 billion drop in the company's value.

Thompson held open the possibility that the two sides could work out a plea agreement and avoid trial.

"The action taken against Arthur Andersen ... is without precedent and an extraordinary abuse of prosecutorial discretion," Andersen said in a statement. "Given the circumstances in this case, this is a gross abuse of government power."

No individual employees were charged in the case, but Thompson said the investigation of partners at the firm continues.

The indictment alleges that at urgent and mandatory meetings, Andersen partners and others told employees to immediately destroy documents related to Enron.

Employees were told to work overtime if necessary to finish the job of destroying documents. The shredder at the Andersen office in the Enron building ran virtually constantly.

The maximum fine for the charges unveiled Thursday is a $500,000 fine and five years probation.

"It shouldn't be a surprise to anyone that serious charges have serious consequences," Thompson said. "It would be unfortunate for a criminal justice system if any individual or any entity could say that he or she or it was too big or too important so as it couldn't be indicted."

Anderson: 'Abuse of Power'

Now struggling for survival, Andersen was Enron's outside auditor during the years when the energy trading company was presenting the public with a bright financial picture that showed billions of dollars in profits. In fact, huge amounts of debt were being kept off Enron's balance sheet through a web of complex partnerships set up by Enron.

Adopting a combative stance, Andersen said criminal proceedings were tantamount to a "death penalty" against the firm, and accused the Justice Department of "a gross abuse of governmental power."

"We strongly believe it would constitute ... a gross abuse of governmental power to bring a criminal proceeding against the firm in the circumstances of this case," Andersen's lawyers said in a letter to Assistant Attorney General Michael Chertoff, head of the department's criminal division.

Andersen complained that the department "refused to allow the firm to tell its story to a grand jury." That decision, the firm said, violates department policy and "basic precepts of fundamental fairness. It is unclear what evidence was presented or whether any witnesses appeared before a grand jury."

"None of the destruction occurred with the knowledge, much less the consent, of senior firm management," said the letter. "Indeed, even as to those few people who engaged in document destruction, there appears to be a dearth of credible evidence that they acted with the willful criminal intent to obstruct a government investigation."

Enron had no comment on the Andersen indictment, company spokesman Eric Thode said.

Andersen has been talking with rivals about selling some or all of its operations, but two firms, Deloitte Touche Tohmatsu and Ernst & Young announced that they were not interested. Worries about Andersen's legal liabilities for its role in the collapse of Enron were behind the decision.

Instead of responding to the government's deadline, Andersen asked for a meeting with prosecutors, who rebuffed the overture. Andersen's lawyers also made the request late Wednesday that the firm be allowed to make a presentation to the grand jury to argue against indictment.

The firm also proposed that the government appoint a special monitor to oversee a new policy for retaining documents at Andersen along with "other reforms that would be approved by the Justice Department."

Reuters and the Associated Press contributed to this report.