Easing Off Andersen to Focus on Enron

NY Times ^ | 4/12/02 | KURT EICHENWALD

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ewsAnalysis For weeks, Arthur Andersen and the government seemed almost on the verge of a brawl, snarling at each other over the looming court battle to determine whether the accounting firm was guilty of obstruction of justice in the Enron inquiry.

Now the two sides are said to be near a settlement of the criminal case, with the government agreeing to abandon its drive to seek a guilty verdict against Andersen and the firm willing to admit that it broke the law in destroying thousands of documents related to Enron. Negotiations continued yesterday by telephone over the terms, and while a deal could still fall apart, people involved in the case said that they expected a resolution in a matter of days.

So what in the world happened?

In the end, a confluence of factors pushed the two sides inexorably into each other's arms. The rapidly shifting legal and economic ground — from the mass defection of clients to the decision of David B. Duncan, the partner in charge of auditing Enron, to plead guilty to a charge of obstructing justice — left Andersen in a position where the chances of survival shrank as the chances of conviction grew. Forced by Mr. Duncan's decision to abandon its argument that no crime ever took place, Andersen had little choice but to seek a deal.

"The defection of Duncan left Andersen with very few cards to play," said Robert A. Mintz, a former federal prosecutor who is a partner with McCarter & English. "If Andersen was in intensive care after the indictment, once Duncan defected, they were on life support and now they are clinging to their very survival."

But, still, the government made concessions that are unparalleled in a corporate criminal prosecution in which charges have already been filed. Under the terms, the government will defer prosecution of Andersen — and ultimately drop the obstruction charge without trial if the firm follows the terms of the deal. The terms, legal experts said, are surprising, given that the government seemed to be holding the best cards.

"If the government agrees to defer this prosecution and not make them plead guilty, it's a huge victory for Andersen," said Stephen M. Ryan, a former federal prosecutor and a partner at Manatt, Phelps & Phillips. "But it's a very curious result."

Ultimately, though, if Andersen follows through with its admission of criminal wrongdoing, the government has achieved its victory — one that experts said would go a long way in helping to ensure that the accounting industry reforms itself.

"The government, by playing out its agenda the way it did, has accomplished its overall objective in sending a message in very strong terms to the accounting community and the business community," said Neil V. Getnick, managing partner with Getnick & Getnick, who specializes in advising companies on business integrity issues. "Now, by working out an arrangement along these lines, they can minimize collateral consequences, and that's what is best for the employees, what is best for the business community and what is best for the public."

Moreover, despite all the public controversy that has swelled in recent weeks around the government's decision to indict Andersen, that criminal case remains something of a sideshow to what is the main attraction: the investigation and possible prosecution of potential wrongdoing at Enron.

"Andersen is not the endgame strategy, it is merely a means to develop a case against Enron," Mr. Mintz said. "The government did not want to see the Enron case delayed by a lengthy trial against Andersen."

By cutting a deal now, legal experts said, prosecutors are enhancing their ability to focus on Enron while simultaneously improving their ability to both investigate and prosecute any potential crimes. Andersen's employees — particularly Mr. Duncan — are almost certain to be witnesses in any prosecution involving fraud at Enron. Without a settlement of the Andersen case, the government may have found itself in the uncomfortable position of having to impeach the credibility of witnesses in the Andersen trial who would later be needed as government witnesses in the bigger case.

"Andersen employees that would testify about giving advice to Enron will now be able to testify with a clean slate," said John J. Fahy, a former federal prosecutor and accountant in New Jersey. "They will not have been witnesses at an Andersen trial and their credibility will not have been attacked at previous testimony."

[185JHP]

Said about the "Statue of JUSTICE": "She may be blindfolded, but she can smell money!"

[sleavelessinseattle]

I'm smelling something too, but it only promotes plant growth...although I did hear it makes a great floor wax in parts of Africa. Not big on wiping their feet before they enter the house, I reckon.