Following are two documents posted on Arthur Andersen's Web site on March 14, 2002 replying to the the federal indictment against the firm. The first is a press release; click here to scroll down to a point-by-point rebuttal of the indictment. Except for necessary formatting, the documents are presented as they appear on Andersen's site.
Statement by Arthur Andersen, LLP
CHICAGO, March 14, 2002 — The action taken against Arthur Andersen, LLP by the U.S. Department of Justice today is without precedent and an extraordinary abuse of prosecutorial discretion. Given the circumstances in this case, this is a gross abuse of government power.
The Department has refused to allow the firm to tell its story to a grand jury, in violation of both Department policy and basic precepts of fundamental fairness. In fact, it is unclear what evidence was presented or whether any witnesses appeared before a grand jury.
A criminal prosecution against the entire firm for obstruction of justice is both factually and legally baseless. The statute makes it a crime for anyone to "corruptly persuade" "another person" to destroy documents, or "with intent to impair" the use of the documents "in an official proceeding." There is absolutely no support for the allegation that the firm acted "corruptly," or that it sought to persuade "another person" to destroy documents. Moreover, the Department has not suggested that any of the discarded documents — many of which have been retrieved — actually contained any incriminating information that could have materially advanced a governmental inquiry.
Once Arthur Andersen, LLP learned of the document destruction in its Houston office, it immediately notified the Justice Department and the SEC and has been cooperating fully with the official investigations ever since. In fact, the firm was prepared to impose penalties on the partners directly involved but delayed doing so in deference to the Justice Department's investigation. The Department's action ignores the fact that Andersen discovered these activities and brought them to the attention of the Department of Justice and has cooperated fully with the investigation.
Arthur Andersen, LLP's own investigation, conducted by two respected law firms, Davis, Polk & Wardell and Mayer, Brown, Rowe & Maw, involved interviews with more than 80 persons and a review of thousands of documents. The investigation revealed that the expedited effort to destroy documents was confined to a relatively few partners and employees of the firm and was almost entirely limited to the Houston office. None of the destruction occurred with the knowledge, much less the consent, of senior firm management. 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 governmental investigation. Given the weak evidence on the criminal intent of the small number of people involved, it is beyond comprehension for the Department of Justice to implicate the entire firm in criminal activity. In this regard, Andersen believes it is significant that the Justice Department has not revealed any information that is inconsistent with our understanding of the relevant facts.
Additionally, the Department's action places in jeopardy the firm's ability to arrive at a substantial settlement with the shareholders of Enron. The Department is fully aware that Arthur Andersen LLP's ability to fund a substantial settlement is based on preserving the firm's practice and revenues.
Similarly, Arthur Andersen, LLP has resolved to undertake all of the comprehensive reforms proposed on March 11 by former Federal Reserve Chairman Paul Volcker and the Independent Oversight Board, including sweeping reorganization of the firm, its structure, its management and its policies.
Following is the text of Arthur Andersen's point-by-point rebuttal to the federal indictment. Please note that this may or may not constitute a legal document.
BACKGROUND PAPER FROM THE FIRM'S LEGAL TEAM ON THE INDICTMENT OF ARTHUR ANDERSEN, LLP: THE GOVERNMENT'S FACTUAL AND LEGAL ERRORS
The indictment of Arthur Andersen, LLP is riddled with factual and legal errors establishing that the government's case entirely lacks substance.
The government's central allegation is that Arthur Andersen, LLP as a firm engaged in a coordinated, pervasive, firm-wide effort to destroy documents. That claim is false and is wholly unsupported by the facts. It is significant that the allegations of the indictment are couched in broad, vague, and conclusory terms; they offer no detail at all, and fail even to identify by name the higher-ups at Arthur Andersen, LLP who the government believes masterminded the document destruction. That is because the government has no facts to support its allegations. Perhaps that is why the government refused to allow Arthur Andersen, LLP to address the grand jury.
The reality is that the document destruction was initiated and in very substantial part carried out by the Enron engagement team in Houston. The government mentions three other Arthur Andersen offices in an attempt to draw a picture of firm-wide misconduct. In fact, it is undisputed that the destruction of documents in two of those offices took place at the direction of the Houston personnel, without the knowledge of anyone else at the firm. Documents were discarded in the third office mentioned by the government on the advice of counsel; this activity had nothing to do with the expedited destruction of documents in Houston that most concerns the government.
In particular, the government's specific misstatements include the following:
A. Allegations involving document destruction
The allegations relating to the destruction of documents — in particular, paragraphs 10 and 11 — are the heart of the indictment. These allegations are either wrong or grossly misleading.
1. Allegation: The indictment alleges in paragraph 10 that Andersen partners on the Enron engagement launched "a wholesale destruction of documents" at Andersen's Houston office on October 23, 2001 and that "Andersen employees on the Andersen engagement team were instructed by Andersen partners and others to immediately destroy documentation relating to Enron."
Facts:
• First, it is very significant that the government fails even to allege that this activity was directed, suggested, or countenanced by Arthur Andersen LLP's management in Chicago, or even by anyone in Houston outside the Enron engagement team. In fact, there is absolutely no evidence that anyone on the Enron engagement team consulted with any senior Arthur Andersen officials — in Chicago, Houston, or elsewhere — about the destruction of documents, either before the activity began or while it was taking place.
• Second, the indictment carefully says nothing either about the circumstances in which the documents were destroyed or about what documents were destroyed. In fact, the shredding and related activity occurred in broad daylight, without any effort to conceal the conduct. Consistent with usual practice, an administrative staff person reviewed the trunks and boxes before they were shredded to ensure that no workpaper files were destroyed. The decision regarding which particular documents and e-mails to discard generally was left to individual engagement team members, as it normally was when workpaper files were finalized; there is no evidence of which we are aware that staff were instructed to destroy particular kinds of documents.
• Third, the indictment carefully says nothing about what documents were destroyed. It does not specifically allege, for example, that any of those documents in fact concerned the narrow subject of the SEC's inquiry (related party transactions involving Andrew Fastow). Nor does the indictment specifically allege that any of the discarded documents were either significant or incriminating — an omission that is telling because an enormous volume of deleted materials have been recovered and are in the government's hands. In fact, so far as can be determined, the paper and e-mails that were destroyed during the week of October 22 were of the type that ordinarily would be discarded at the end of an audit assignment when the workpaper files are completed.
The vast bulk of Arthur Andersen's Enron materials were retained. To put in perspective the indictment's claim that "[t]ons of paper" were shredded, Andersen actually retained an enormous volume of documents and electronic files relating to Enron. Approximately 1500 boxes of desk files (containing an estimated three million sheets of paper) and hundreds of thousands of e-mails have been collected from the offices of Andersen personnel who worked on the Enron engagement. In addition, Andersen has been able to retrieve thousands of additional e-mails that had been deleted by relying on backup computer tapes that Arthur Andersen retains. So far as can be determined, none of these discarded documents contain incriminating "smoking guns." Arthur Andersen's central workpaper files relating to Enron also have been preserved and contain approximately 4800 official files and reports. Because of the tremendous volume of materials that have been preserved, the type of materials that normally would be destroyed, and the successful efforts to retrieve deleted e-mails, it is not possible to conclude that any of the document destruction that occurred in October and early November 2001 actually resulted in the loss of important accounting information.
2. Allegation: The indictment alleges in paragraph 10 that "[d]uring the next few weeks" after October 23 "an unparalleled initiative" to destroy documents was undertaken.
Fact: The vast bulk of document destruction took place during a single week following October 23. Deletion of documents tailed off dramatically during the following week and came to an almost complete halt the week after that.
3. Allegation: the indictment alleges in paragraph 11 "instructions were given to Andersen personnel working on Enron audit matters in Portland, Oregon, Chicago, Illinois, and London, England, to make sure that Enron documents were destroyed there as well."
Facts: This allegation is extremely misleading. The indictment carefully uses the passive voice — "instructions were given" — without stating who gave them or the context in which they were given. In fact, in two of the locations cited by the government, limited destruction took place at the direction of the Enron engagement team in Houston. In a third case, documents were discarded in response to legal advice and were tailored in a plain attempt to comply with Andersen's document policy. Nothing in these events offers any support at all for the allegation that Andersen management or headquarters directed — or knew of — the document destruction activities.
• Portland. The indictment offers absolutely no details about document destruction in Portland — and that is because, on examination, there is absolutely nothing incriminating to allege. In fact, during the week of October 23, an Andersen employee on the Enron engagement team in Houston sent a voice-mail to an employee in Andersen's office in Portland, Oregon, that led that one employee to delete Enron-related e-mails. That employee then forwarded the message to other Portland partners and managers who worked on Enron matters. When the lead partner on the Enron engagement in Portland and the Portland practice director learned of the voice-mail, however, they instructed their team to disregard it. There is no evidence that any additional documents were destroyed pursuant to the request from Houston. This episode does not demonstrate any firm-wide, coordinated program of document destruction; in fact, it proves the contrary.
• London. During the week of October 23, at the same time that the meetings addressing document clean up took place in Houston, two Enron engagement partners in Houston called a partner in Andersen's London office who previously had been based in Houston. In response to that call, instructions were given in London to clean up Enron-related files. The indictment characterizes this as "a coordinated effort by Andersen partners and others, similar to the initiative undertaken in Houston." But it is telling that the indictment does not describe any documents actually destroyed in London, does not give the amount of any such documents, and does not say how many people were involved in such efforts.
• Chicago. The indictment baldly alleges, without any elaboration at all, that "Enron-related documents also were destroyed by Andersen partners in Chicago." On examination, it is clear why the government offers no details: the activity in Chicago was not concentrated during the week of October 22, was not coordinated in any respect with the document destruction in Houston, Portland, and London, and did involve routine efforts to comply with Andersen's document retention policy.
The facts: In late September and early October 2001, some members of Andersen's Professional Standards Group in Chicago participated in discussions of Enron accounting matters with Andersen attorney Nancy Temple; in these discussions, Temple reminded the PSG accountants that, under the Andersen document retention policy, superseded drafts of memos should be discarded. In response to this advice, PSG members discarded Enron-related materials beginning in the second week of October — before the SEC request for information on October 17. In addition, there does not appear to have been any attempt to coordinate document deletion efforts by PSG personnel. Some PSG accountants deleted only a portion of their Enron-related e-mails, retaining those that they considered to be useful precedents; others deleted e-mails as the particular accounting issues to which those e-mails related were resolved and documented in a final workpaper memorandum; others completed all of their deletions prior to October 17. Indeed, one partner deleted a collection of e-mails only after confirming that Temple would preserve a hard copy set of the materials — which she did. There is absolutely nothing suspicious in this.
B. The conduct alleged is not criminal
In addition to its factual deficiencies, the indictment does not establish that a crime was committed by anyone. The offense alleged is obstruction of justice under 18 U.S.C. § 1512(b), which makes it a crime for anyone to "corruptly persuade[] "another person to destroy documents "with intent to impair" the use of documents "in an official proceeding." These elements are not present here, for several reasons.
• The indictment does not show that that anyone acted with criminal intent. Andersen personnel who destroyed documents may well have acted, not to frustrate any SEC inquiry, but to comply with the Andersen document policy at a time when their work was coming under scrutiny by senior accountants within the firm. That policy directed firm personnel to document and preserve their audit workpapers in one central file and to dispose of all other work product, such as e-mails, drafts, and personal notes. The policy required that these non-essential materials be destroyed as they became expendable during an engagement and no later than when the central file was finalized. The policy added that, in the event Andersen is "advised of litigation or subpoenas regarding a particular engagement, the related information should not be destroyed." But the policy did not expressly address those circumstances in which Andersen is not a party to litigation or the subject of a government investigation.
• There was no "official proceeding" going on to obstruct. The indictment alleges that Andersen personnel intended to impair the SEC informal inquiry relating to Fastow's related party transactions. But the SEC letter that was sent on October 17, which simply asked for information from Enron and specifically stated that "[t]he Commission has not determined that the matters hereby under inquiry involve violations of the federal securities laws," plainly was too informal and preliminary to qualify as an "official proceeding" within the meaning of the statute. See United States v. Shively, 927 F.2d 804 (5th Cir. 1991).
• Under the governing law, there were no "corrupt" methods used to persuade anyone to destroy documents. That makes the government's theory in supportable.
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