Supreme Court Questions Andersen's Enron Verdict

Published April 27, 2005

| Reuters

U.S. Supreme Court justices Wednesday criticized the way a jury was instructed before convicting accounting firm Arthur Andersen (search) of obstructing a government probe into the collapse of Enron Corp (search).

During arguments before the court, several justices sympathized with Andersen's argument that jurors should have been told that for a conviction they needed to find the company had acted knowingly to subvert an investigation.

"If I were a juror, I might think there is missing (in the jury instructions) any dishonesty of purpose," Justice Stephen Breyer (search) said.

Andersen, Enron's longtime auditor, was charged in 2002 with corruptly persuading its employees to destroy documents in October and early November 2001 to keep them from federal investigators. The shredding continued until the Securities and Exchange Commission (search) served a subpoena on Nov. 8, 2001, for documents.

Several justices expressed concern that the jurors should have been told to use a higher standard of proof that Andersen was violating the law, and that a lesser standard could subject businesses to unwarranted prosecution in similar cases.

"It seems to me that is a sweeping position that will cause problems for every business (and) small business in this country," Justice Anthony Kennedy (search) said.

Houston-based Enron was the nation's seventh-largest public company by revenue before it spiraled into a then-record bankruptcy in December 2001.

Disclosures that Enron hid billions of dollars in debt and pumped up its financial statements through the use of complicated, off-the-books transactions prompted its collapse.

A federal jury in Houston convicted Andersen in June 2002, ending its ability to audit public companies. It still has some non-accounting operations. A U.S. appeals court upheld Andersen's conviction last year.

During Wednesday's arguments, Deputy Solicitor General Michael Dreeben, the government's lawyer, argued that by getting employees to destroy important documents, Andersen had committed the "corporate equivalent" of wiping down the fingerprints at a crime scene before the authorities arrive.

Dreeben said the instructions to the jury were proper and that a company is guilty of "corruptly persuading" employees as long as the government can show that it knew there was "a reasonable possibility of an investigation."

That argument provoked skeptical questions from the justices. "You want criminal liability to turn on that?" Justice Antonin Scalia asked incredulously.

Andersen's lawyer, Maureen Mahoney, said the jury had been told it could convict the firm if it found that Andersen had merely "impeded" a government inquiry. That should not have been enough for a guilty verdict, she said.

Mahoney said an Andersen lawyer had given routine legal advice on the firm's document retention policy, and an informal SEC investigation in late 2001 was not an "official proceeding."

Mahoney said jurors should have been told that they needed to find the company had acted knowingly to subvert an investigation in order to be found guilty.

"The instructions given to this jury deprived the word 'corruptly persuade' of any of its (proper) meaning," Mahoney told the justices. A decision is expected by the end of June.

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