Arthur Andersen Convicted of Obstruction of Justice

A guilty verdict was delivered Saturday against Arthur Andersen for obstructing justice by interfering with the Securities and Exchange Commission's investigation into Enron's collapse.

Andersen could be dealt up to five years of probation and a fine of up to $500,000. U.S. District Judge Melinda Harmon will determine the firm's sentence Oct. 11.

The company also could be fined up to twice any gains or damages that the court determines were caused by the firm's action and barred from auditing publicly traded companies — likely putting the crippled firm out of business.

Reuters reported that the embattled accounting firm is planning an appeal, but the verdict could be the final nail in the coffin for the former powerhouse and bring to light more details of the corresponding Enron scandal.

"Andersen is history, no matter what," said Itzhak Sharav, an accounting professor at Columbia University's business school. "Who wants to be associated with the company?" he asked.

The jury needed 72 hours over 10 days to reach a verdict — one that didn't turn on Andersen's shredding of Enron-related documents.

In fact, jurors believed Andersen's explanation that the shredding of documents was merely in keeping with its document retention policy and was not, as prosecutors alleged, an attempt to thwart federal regulators.

"All this business about telling people to shred documents was largely superficial and largely circumstantial," jury foreman Oscar Criner said.

Instead, a single altered memo convinced the jurors that Andersen interfered with the SEC investigation.

The altered memo was a summary of a conference call written by lead Enron auditor David Duncan. The call discussed an Oct. 16 earnings release that indicated accounting problems; Enron characterized some issues as "nonrecurring" when Duncan felt the opposite was true.

In an Oct. 18 memo, in-house Andersen lawyer Nancy Temple wrote Duncan, saying her name should be removed from the prior memo because it would increase "the chances that I might be a witness, which I prefer to avoid."

"Arthur Andersen did not approve that (earnings release) and Enron went along anyway and (issued) it," said Criner, a computer science professor at Texas Southern University. "Then Arthur Andersen set about to change things to alter documents to keep that away from the SEC."

Sharva predicted more companies will fire Andersen, state accounting boards will move to revoke Andersen's license to do business and the company will be hit with a flood of civil lawsuits.

Defense attorney Rusty Hardin promised an appeal, declaring: "This company did not commit a crime."

The verdict did not come easy; the jury said on Wednesday that they were deadlocked and were ordered back to work. On Friday, Harmon gave jurors greater flexibility to reach a guilty verdict by ruling they didn't have to agree on who committed a crime as long as they all believed someone at the firm "acted knowingly and with corrupt intent."

Harmon acknowledged she appeared to be breaking new legal ground, a prospect she acknowledged was "terrifying."

In a verdict form, jurors said they agreed unanimously that a single person — later informally identified as Temple — was responsible for the wrongdoing.

Andersen had lost hundreds of clients and partners even before the felony conviction in the first criminal trial to emerge from the Enron scandal. The firm and its employees are likely to face more prosecutions.

The verdict is also a potential boon for prosecutors trying to unravel the Enron debacle. They have argued that Andersen had intimate knowledge of the complex off-the-book partnerships Enron used to boost its image of financial health before its collapse into bankruptcy last December.

The energy trader is under a grand jury investigation, as well as scrutiny from Wall Street regulators and Congress.

Prosecutors spent a month presenting testimony from employees, federal regulators and FBI agents. They also showed jurors mounds of documents, e-mails and handwritten notes they said proved Andersen had covered up a scandal.

Their key argument was that Andersen — just before regulators began investigating Enron — suddenly promoted a little-used document policy as a signal to its Enron audit team to begin destroying files.

After the trial, jury foreman Criner emphasized the shredding did not persuade the jury of Andersen's guilt. "That had almost nothing to do with shredded documents. It was something else going on."

The star prosecution witness was David Duncan, the former Andersen partner who was in charge of the Enron audit team.

He pleaded guilty to obstructing justice in April and spent nearly a week on the witness stand, telling jurors that he had signed an agreement with Andersen to present a united front that neither did anything wrong.

He said he reneged on the agreement after a lot of "soul searching."

"I obstructed justice," he testified. "I instructed people on the (Enron audit) team to follow the document retention policy, which I knew would result in the destruction of documents."

The jury was also shown an Oct. 10 video of Andersen partner Michael Odom telling colleagues — including a dozen on the Enron audit team — that the document policy should be followed. He said anything destroyed before litigation is filed was "great" because "whatever might have been of interest to anybody is gone and irretrievable."

Nancy Temple, an in-house Andersen lawyer, also sent an e-mail to Odom on Oct. 12 that said it "might be useful to consider" reminding the Enron audit team "of our documentation and retention policy. It will be helpful to make sure that we have complied with the policy."

Five days later, the Securities and Exchange Commission told Enron it was under an informal inquiry after the company announced a $618 million third-quarter loss and a $1.2 billion writedown in its own value.

Duncan testified that he told his staff during an Oct. 23 "pep talk" to comply with the document policy, but said he didn't explicitly order any shredding.

Other evidence included an Oct. 24 e-mail from Shannon Adlong, an assistant to Duncan, who wrote: "AARRGGH. Send more shredding bags. Just kidding, we ordered some."

The shredding continued through Nov. 9, when the audit team learned that the SEC had sent a subpoena for Enron documents to the firm the day before.

Andersen argued that workers simply were weeding out unneeded documents.

Hardin said a number of important documents survived the shredding, suggesting there was no conspiracy to cover up Andersen's work on Enron's books. He got Duncan to testify that he preserved several potentially embarrassing records, including one labeled "Smoking guns you can't extinguish."

The memo detailed Enron vice president Sherron Watkins' fears about d rumors of secret side deals and the accounting of so-called Raptor entities, which were backed by Enron stock but reported as separate from the company in financial statements. The Raptors enabled Enron to keep hundreds of millions of dollars in debt off its books.

Hardin also noted that Duncan didn't decide he had committed a crime until after several meetings with prosecutors.

Andersen was indicted for obstruction of justice in March after talks to settle allegations of wrongdoing broke down. The firm has lost more than 650 of its 2,300 public clients.

Duncan could get up to 10 years in prison at sentencing Aug. 26, though prosecutors are expected to seek a lesser sentence.

 The Associated Press contributed to this report.