Why Did the DOJ Indict the Entire Firm of Arthur Andersen?

This partial transcript of Special Report with Brit Hume, March 21, 2002 was provided by the Federal Document Clearing House. Click here to order the complete transcript.

Other guests and topics for March 21, 2002 included:
• Todd Connor: The Al Aqsa Brigades claim responsibility for the latest Mideast suicide bombings
• Jim Angle: President Bush embarks on a four-day trip to Latin America
• Bret Baier: Defense Secretary Donald Rumsfeld reveals the details of military commissions ordered by the president
• Catherine Herridge: Homeland Security Director Tom Ridge's appearance before a House subcommittee ends before it ever really begins
• Carl Cameron: Republicans accuse Democrats of a partisan "abuse of power" for blocking President Bush's federal judicial picks
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It is not every day that the Justice Department indicts an entire firm, especially a worldwide one like Andersen with an estimated 85,000 employees, only a small number of whom, obviously, were involved with Enron itself. So what is going on here? For answers, we turn to Professor Lawrence Mitchell of George Washington University whose expertise lies at the intersection of law, business and finance. He's also the author of Corporate Irresponsibility: America's Newest Export. Welcome to you, sir.


HUME: Andersen employees, as you know, protested outside the Justice Department before this indictment was returned. They've embarked on a letter writing campaign to the Justice Department, copies to the news media.


HUME: We have a sample of one of those letters that I'd like to — before we get going, I'd like to put up on the screen and let you have a look at. Dr. Mr. Chertoff, they write to the head of the criminal division of the Justice Department, I'm a partner in the Arthur Andersen — the firm Arthur Andersen, LLP, I would like to respectively request a that this indictment be withdrawn as it has directly impacted 85,000 people, 26,000 of who work in the United States that have nothing to do with the matter at issue. That's John Caldwell of Novato, California.

(UNINTELLIGIBLE) presumably Mr. Novato, if he wasn't involved in Enron and a lot of other Enron employees — I mean a lot of other Andersen employees had nothing to do with Enron but the indictment would seem to spill on to them. What is the reason for that ...

MITCHELL: Well that's right. And in fact, this is a — it's a different sort of indictment that you would see sometimes with other corporations because, for example, when Microsoft is indicted and then convicted of antitrust violations ...

HUME: But that was a civil case.

MITCHELL: A civil case but they can continue to operate their business. Right? It doesn't affect Microsoft products. Microsoft employees still get paid. Arthur Andersen's capital is entirely its reputation. So by indicting the entire firm what you've done of course is you've created the situation where reputationally Arthur Andersen is now at a severe disadvantage. May go out of business.

HUME: Indeed, before this happened, they lost 50 clients. Presumably more will continue to leave.

MITCHELL: Exactly right. And so what that does and I guess what the employees are arguing about is, in fact, says, look, there are a few bad people in the firm. They did these bad things. Our firm is dependent on our own reputations and by indicting the firm you've destroyed all of our reputations. And, therefore, you're going to destroy our livelihood.

HUME: Right. Now is there a case to be made — let's assume that the Justice Department knows and it presumably has to in order to prosecute the case who was involved and these people will be called in or cited, anyway, presumably that they were top executives who acquiesced in this conduct. They will — we'll find out about them. Why the chip choice not to indict them as individuals and to indict the company as a whole? What is the reason for that?

MITCHELL: That's a very good question. Of course I don't know the reason because I don't know the thinking of the Justice Department. But what seems to me to be the case is this. With Andersen, you have a history, in fact, they were under and injunction from the Waste Management case at the time they were shredding documents.

HUME: This was an earlier case involving Waste Management Incorporate, which is a company that had accounting problems ...

MITCHELL: Right, overstating earnings ...

HUME: ... overstated earnings and so on.

MITCHELL: Right. And Sunbeam, and they were the accountants for Global Crossing. And so it seems to me that the Justice Department is saying is in effect this is a worldwide organization. That the ethic in the organization and here's the flipside to the employees' case, who is pervasively one of cutting corners, of not necessarily engaging in fraud but really pushing the envelope and so as a result, the only rational thing to do is to indict the firm.

Now that isn't to say, by the way, that they're not going to indict individuals. I would fully expect that they indict individuals as well. But to indict the firm itself is to make a very big statement about the quality of behavior and the importance of the role of a company like Arthur Andersen to the American economy.

HUME: Now there's also this, a question needs to be asked and that is a republican administration came to power linked to Enron in a number of ways, principally through campaign contributions, which flowed more to republicans than democrats by far. Senior member of the defense department team, secretary of the army (UNINTELLIGIBLE) a former Enron employee, Andersen, of course, says this is all Enron related. Does this not, perhaps in the eyes of someone at the Department of Justice, help the administration politically by giving a big black eye to an Enron-related company and thereby further distancing the administration that would like to have a little distance from this whole mess?

MITCHELL: That's an excellent question. And yes, obviously, that seems to be a possibility. Certainly, the speed with which the indictment came down, I think, was a little surprising to everybody. And that may very well be the administration's attempt to send a very strong message, dissociating itself from the entire thing.

Let's hope that now the campaign finance reform is a reality and this kind of problem doesn't come up. But it's true that it's entirely possible and in fact likely that the administrative policy is influenced by the desire to not appear to be favoring anybody in this and in fact be getting some more distance.

HUME: Well in effect (ph) and of course, this case when it came to Enron, the administration has done no favors that we know of since ...

MITCHELL: Well that's right.

HUME: ... (UNINTELLIGIBLE) trouble. Now — but there is this other question as well and that is Enron, I mean, Andersen has moved and gotten and prevailed on getting a much earlier trial date than the Justice Department wanted. Last question. Why do they want that?

MITCHELL: Because I think what they want is — what they need to do in order to survive and this goes back what I initially, is they've got to get their reputation cleared. If you're a CEO of a major corporation ...

HUME: So you're in a hurry when (UNINTELLIGIBLE)?

MITCHELL: You're in a big hurry. Absolutely, because if you're the CEO of a major corporation, when your auditor is indicted, it's really hard to defend retaining that auditor. Now it may be that Andersen is ultimately acquitted but the acquittal isn't going to help if it comes too late.

HUME: Got you. Professor Mitchell, pleasure to have you. Thank you very much.

MITCHELL: Thank you.

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