Andersen: conviction ends audit practice

WASHINGTON, June 16 (UPI) -- A jury Saturday convicted Arthur Andersen LLP of obstructing justice by attempting to destroy evidence about its customer Enron Corp., a conviction the firm said "will effectively end" its auditing practice.

The Securities and Exchange Commission said Saturday that despite Andersen's statement that it will now turn over its clients to other companies, the firm can keep making required filings to "minimize any potential disruption to the capital markets."

The company's lawyer also vowed to appeal the verdict despite the company statement that "the firm expects to cease practicing" and will be "working actively to help transition its remaining clients to other accounting firms."

Several jurors reportedly disclosed that it was not the shredding of thousands of documents that finally persuaded them the firm was guilty of obstruction, nor was it the testimony of the prosecution's star witness, former Andersen executive David Duncan. What tipped the balance in favor of a unanimous guilty verdict, they said, was a single memo that suggested an unindicted Andersen lawyer was trying to cover up disposal of documents.

An Andersen spokesman said, "Today's verdict is wrong." Spokesman Patrick Dorton said Andersen "is planning to appeal the conviction based on flawed jury instructions and errneous evidentiary rulings that precluded Andersen from presenting its entire defense."

Dorton said the conviction showed "any company could be prosecuted for following standard document disposal practices, before receiving a subpoena or even an informal request for documents by a third party."

The firm was made up of "26,000 innocent people" and it "self-reported its findings, fully cooperated ... and worked in good faith to find a solution that would have prevented this trial," he said.

In a separate statement Andersen said the conviction "will effectively end the firm's audit practice." Unless the jury verdict is set aside by the trial judge, the conviction could become effective as soon as Aug. 31 and "would be grounds for automatic suspension of Andersen's ability to practice before the Securities and Exchange Commission."

The firm said that between now and Aug. 31 it will be "working actively to help transition its remaining clients to other accounting firms" and expects to cease practicing by the end of August. It will also begin "an orderly process" to "surrender the firm's licenses."

The SEC issued a statement confirming it will allow Andersen to continue to facilitate the issuance of corporate debt securituies, practicing at least until Aug. 31 to "minimize any potential disruption to the capital markets and the affected issuers while those issuers complete certain pending or future filings."

But the permission for Andersen to keep practicing "is of finite duration," the SEC said, and is intended solely to address temporary disruptions that the affected issuers may face as a result of Andersen's conviction."

The SEC added that its investigation into Andersen's role in the operations of Enron are continuing.

The jury of nine men and three women reached the verdict after listening to five weeks of testimony and deliberating for 11 days in the first criminal trial to come out of the federal investigations that have followed Enron's bankruptcy in December.

After the jurors reported they were deadlocked and unable to reach a verdict earlier this week, U.S. District Judge Melinda Harmon instructed them to continue working, finally advising them that they need not find a particular individual guilty in order to find the firm guilty.

Harmon told the jurors that they could convict Andersen if each juror believed at least one Andersen employee violated the law. She said they did not necessarily have to agree on which Andersen employee.

Defense lawyers immediately asked for a mistrial but Harmon denied the motion.

When the jurors were polled Saturday on their verdict, however, they indicated they had agreed that only one employee, an Andersen attorney who was not charged with any crime, committed the crime.

Outside the courthouse, Andersen attorney Rusty Hardin said he was disappointed with the verdict but he praised the dedication of the jury.

"I think we had 12 citizens who tried to do what was right and that was what we asked for," he said.

The Houston attorney criticized the judge's instruction that the jurors needed to only find one employee guilty in order to convict the whole company.

"We think that is a system out of balance, quite frankly, but it is something we have to live with," Hardin said.

C.E. Andrews, an Andersen partner, said the 89-year-old accounting firm did not regret going through the trial, and he praised the defense team.

"The purpose of this was for us to fight for our honor, our dignity," he said. "We did not think we committed a crime, we still do not think we committed a crime. We respect the process but the process is not over."

Assistant U.S. Attorney Andrew Weissmann, a member of the prosecuting team, said despite all the complicated testimony and evidence the case was about a simple principle.

"When you expect the police, don't destroy evidence, and for Arthur Andersen that police was the SEC and they knew they were coming and they destroyed evidence in advance of their getting there," he said.

The head of special Justice Department task force investigating the Enron collapse said the conviction gives them added momentum.

"We are going to get to the bottom of the Enron debacle and those people who are responsible are going to be prosecuted," said Leslie Caldwell, director of the Enron Task Force in Houston.

Andersen, once the nation's fourth largest accounting firm, was charged in a federal indictment March 14 with one count of obstruction of justice. The government alleged Andersen had destroyed Enron records to subvert an investigation by the Securities and Exchange Commission.

Andersen lawyers called the indictment "a death sentence" for the company and there were settlement talks in the weeks that preceded the start of the trial May 6. The attorneys also pushed for an early trial because they said the government didn't have a solid case.

Andersen could be fined up to double the total economic damage its actions are found to have caused.

The Chicago-based accounting firm has already lost more than 600 clients, most of them since the government's indictment in March. There are only about 10,000 employees left at the firm that that once employed more than 26,000.

Sentencing was scheduled for Oct. 11.

In the trial, witnesses stated that Duncan called a meeting Oct. 23 last year to stress the need to adhere to the often-discussed document-retention policy. It came the same day Enron revealed it would take a $1.2 billion write-down in shareholder equity.

The SEC upgraded its informal inquiry at Enron into a formal investigation by Oct. 27 and on Nov. 8 the agency formally subpoenaed Andersen for documents. Andersen employees halted the destruction the next day, according to testimony.

Andersen lawyers argued that employees shredded Enron records as required under the retention policy and there was no criminal intent to derail the SEC investigation. They said such shredding was a routine business practice.

Duncan, who testified for five days, said he personally shredded only about a foot-high stack of Enron documents and he didn't know at the time he was doing anything wrong. The defense produced 21 boxes of Duncan's Enron files that were not destroyed.

"The incredible irony in this case is that we are being prosecuted based on evidence that we preserved and gave to the government," Hardin said during his closing argument.

In their case, the government attempted to show that Duncan and several other Andersen executives had roles in the shredding, including notes in early October from in-house attorney Nancy Temple telling Enron auditors to adhere to the document policy.

Under the document-retention policy the company employees were supposed to retain critical company accounting records and destroy so-called "extraneous documents." The government said it was used in the Enron case to destroy critical documents.

In the government's closing argument, Assistant U.S. Attorney Samuel Buell urged the jury to reject the argument that the destruction was business as usual and recognize what was actually going on at the Andersen office in Houston.

"Simple reason and common sense says they were getting ready to defend themselves against the SEC and litigation," he said. "They were girding themselves for the Enron wars."

(With reporting by Phil Magers in Dallas)