Andersen goes on trial - Future of accounting firm at stake in obstruction case

HOUSTON, May 5 — 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.”

VOLCKER’S EFFORTS ‘IN SUSPENSION’ 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.

STAR WITNESS 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.

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.

Client losses? Who in their right mind would continue to retain these thieves and bandits?
Fleeing partners? Yeah, baby. Who can blame them?
Severe damage to its rep? It's gone way past severe!

Survive? These sleazeballs don't deserve to survive. They need to be, but won't be, put in jail for a very long time.

The reason we have CPA firms is the certain knowledge that company officers will lie when things go bad. It is human nature to at least try to spin bad news. CPA firms were to be the people that held management's nose to the grindstone. They were to keep honest people honest. The truth is they are as big a crooks as the crooks.

The idea for Accountant firms was independant auditors would be aboue reproach. If they certified that the books were accurate... they were accurate and true.

When an Accounting firm agrees to cook the books for money they are as bad as a cop that robs banks.

Arthur Anderson and a bunch of its partners need to do serious jail time. The firm needs to be deader than Al Capones booze company.

Lots of rip offs coud not have occured with out the lying accounts. Adelphia cable is an example. The DOJ needs to put enough accountants in jail so the accounts that remain will not ever again lie for money.

Have you considered that it is very difficult to detect fraud inside a company, especially a company as huge as Enron? Maybe a couple of people in AA knew what was going on, but maybe not. These things are extremely complicated. The real mistake they made was trying to cover up...this made them look guilty whether they were or not.

"They need to be, but won't be, put in jail for a very long time."

. . .the people I know from Arthur Andersen are the most professional and decent people one could know. Most hold to standards that are far above the average.

If these folks are 'sleazeballs' or worse; then you had better not breathe the air in your neighborhood.

. . .sad scapegoating; making Arthur Andersen the epitomy of corporate evil. . .it is simply not true.

"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.”

Bowman speaks from another planet. . .what has happened to Andersen is closer to an 'assasination'. . .

I find it interesting how this case can find its way to trial so quickly, while murderers wait for decades for their day in court.

Hey, I wonder how long it would take a murderer to get to court if he committed murder while in the process of copying MP3 music files? I WOULDN'T WANNA BE THAT DUDE!

The real mistake they made was trying to cover up...this made them look guilty whether they were or not.

Ok. Give me a scenario where an accounting firm would shred documents if they weren't guilty. My question is guilty of what, to take that risk, unless they were making the same mistake as Bin Laden in thinking nothing changed in January 2001.

having worked for a "Big 6" firm in the days when there were Big "6", I can say that none of this surprises me, though obviously there are a lot of good people that are worked very hard in those companies ... no one was guarding the guards, and the notion that neither Enron nor AA knew there was fraud is ludicrous ... the AA man who knew the $100 million loss on the sports team shouldn't be reported as a $50 million profit, was "replaced" when AA was notified by Enron exec's who reported he was "uncooperative" with the "client's staff" ... and he told AA ... so, yeah, there were several who knew ... obviously not the poor slob AA works 70-80 hours per week; he / she hardly sees daylight ...

My friend, have you ever heard of the "deep pockets" legal technique? If not, look it up and you will see why documents would be shredded, even if the firm isn't guilty. Legal fees are around 17% for the big Five firms. Just being sued is enough to force settlement sometimes because these firms sell one thing, Reputation...Of course, I don't think Andersen is innocent here, just pointing out that these firms are subjected to tons of frivilous lawsuits.

I still don't see how it helps to shred documents with the whole world watching. No upside except to cover up for particular interests, and sacrifice the corporation if necessary. The shredding was bound to be found out and if so almost guarentees losing any civil suit.

Well, maybe they didn't think the whole world was going to find out..

Agreed. As I said originally "they were making the same mistake as Bin Laden in thinking nothing changed in January 2001."

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