HOUSTON – Arthur Andersen LLP's federal trial for obstruction could be the knockout punch in the company's fight to survive client losses, fleeing partners and severe damage to its reputation.
Unless attorneys reach a last-minute settlement, jury selection will begin Monday in the first criminal trial to emerge from Enron Corp.'s collapse last year.
"All the trial will do is allow the Justice Department to bring a lot more dirt out on Andersen and drive the stake deeper into its heart," said Arthur Bowman, editor of Atlanta-based Bowman's Accounting Report, an industry publication.
Andersen is charged with obstruction of justice. Members of the accounting firm allegedly shredded documents and deleted computer records related to Enron audits as the Securities and Exchange Commission began examining Enron's complex web of accounting.
The firm publicly acknowledged the shredding in January, shortly after reporting it to the Department of Justice.
Since then, nearly $1 billion in revenue vanished as more than 300 publicly traded clients such as United Airlines and Merck & Co. dumped the smallest of the Big Five auditing firms — most after the indictment was unsealed March 14.
Meanwhile, Andersen's international network has been dissipating as partners in more than two dozen countries moved to join competitors.
U.S. partners who never touched an Enron audit are poised to join rivals as well, after the firm laid off 7,000 workers.
"Even an acquittal doesn't reverse all the damage of the past three to four months," Bowman said. "But this is a firm that truly believes in its innocence as a firm, and apparently is willing to go to its death to prove it."
On Sunday, former Federal Reserve Board chairman Paul A. Volcker told The Associated Press that his efforts to try to save Anderson "are in suspension."
Volcker, working with an oversight board, had hoped to overhaul the accounting firm's procedures, but had cautioned that this required the firm holding together and settling lawsuits.
He said his board would continue to function "because we want to encourage reform, whether or not Andersen is around."
The indictment alleges that the firm destroyed "tons of paper" related to Enron at its offices in Houston, London and Portland, Ore. as well as in its Chicago headquarters. At times employees worked overtime and shredders couldn't keep pace.
Rusty Hardin, Andersen's lead lawyer in the criminal case, argued March 20 for a speedy trial to expose what he called flimsy evidence from prosecutors. Top Andersen officials had turned over documents to prosecutors and had testified before Congress that they knew nothing of intentional shredding to thwart Enron investigations.
U.S. District Judge Melinda Harmon agreed and set Monday's trial date.
She also has ruled that jury selection would last no longer than a day and attorneys would give opening statements on Tuesday.
Negotiations to settle the criminal case broke down in mid-April.
The prosecution's star witness is expected to be David Duncan, Andersen's former partner in charge of the Enron account. He pleaded guilty April 9 to obstruction for directing the shredding in the Houston office.
"It seemed their only hope of survival was go to trial quickly and get a good verdict," said Randal Picker, a commercial law professor at the University of Chicago Law School who is teaching a seminar on Enron. "Now the firm's dying."
Hardin says that more than a third of potential jurors wrote on questionnaires that they thought Anderson was guilty. No one believed when Andersen sought a speedy trial "that we'd end up with a jury pool with so many people who'd made up their minds," he said.
"We're being prosecuted for destroying documents and the evidence is based on documents that weren't destroyed," he added.
Christopher Bebel, a former SEC and Justice Department prosecutor who now handles securities and economic crime cases for Shepherd Smith & Bebel in Houston, said jurors will have to conclude whether people who did the shredding and deleting were acting on behalf of the firm when deciding Andersen's guilt.
To that end, he said prosecutors will likely choose jurors who are "managerial types" who shoulder responsibility at work and make tough decisions.
But Hardin's team will likely seek "free spirits reluctant to recognize authority who might be somewhat emotional, and therefore rest their decision on sympathies," Bebel said.