Andersen Already Knows Its Sentence

Its showdown trial may be just starting, but the accountancy has been on Death Row since it failed to strike a plea bargain with Justice

For the partners at Arthur Andersen LLP, the public anticlimax is about to begin. The firm goes on trial on May 6 in Houston, accused of obstructing justice by shredding documents for its audit client, bankrupt energy giant Enron.

The trial is likely to produce a torrent of vitriol as the government paints Andersen as a marauder that wantonly flouted efforts by federal securities regulators to seek justice in the Enron debacle. And the showdown may produce a measure of pathos if the firm's lawyers can argue that all but a handful of 26,000 Andersen employees are hardworking innocents who face ruin because of government overreaching. In the end, the case will either spawn humiliation for the Justice Dept., which has been widely criticized for its go-for-the-jugular approach, or it will add a damning exclamation point to the story of Andersen's recently checkered past.

One thing the trial won't do is bring about Andersen's demise. That's already assured. With nearly 300 publicly owned corporate clients now gone, 7,000 staffers laid-off, and a well-orchestrated bidding process under way for the firm's partners and remaining assets, Andersen's passing is just a matter of time. Senior partners expect that by the end of July -- if not sooner -- the $9 billion-a-year global giant will be little but a memory, a legal fiction preserved in tangled court fights by aggrieved investors and Andersen's own retired partners.


  Throughout May, deals to take on partners and clients will be finalized with such bidders as PricewaterhouseCoopers, KPMG, and Deloitte Touche Tohmatsu, along with a clutch of smaller firms. And, probably with the help of a bankruptcy court, 89-year-old Andersen will fade into corporate history. As the firm's insiders admit, its last best hope, reorganization under former Federal Reserve Chairman Paul A. Volcker, is now a dead issue.

Still, barring a last-minute surprise settlement, the Houston trial promises to be a hard-fought affair that will have enduring, ugly consequences for all involved. For many Andersen partners, it will be a matter mostly of salvaging their professional dignity as their lawyers fight to keep one last smudge from blotting the firm's record -- and further tarnishing the resumes of job-seeking Andersen partners and staffers. Their dignity has become especially important because, practically speaking, an obstruction conviction against the firm would have no real consequence beyond a fine of just $500,000 and probation. As Andersen disappears, such penalties will be all but meaningless.

More indictments are possible, during or after the trial

Some partners will have plenty to worry about in the trial -- with more individual indictments possible, depending on the testimony. David B. Duncan, the former Andersen auditor who led the firm's team at Enron, has already pleaded guilty to obstruction charges -- and he'll be the government's star witness. Certainly, his appearance will be closely watched because of the threat that he could implicate others in the frantic effort to shred Enron documents last fall.

"Mr. Duncan may not be the last person who is indicted," says Joseph E. diGenova, a former U.S. Attorney from Washington, D.C. "The grand jury is still active." Prosecutors, he says, can bring an indictment against others during or well after the current trial.


  Experts say Duncan's guilty plea all but makes the government's case. As a senior partner who was acting in his professional capacity when he led an effort to destroy thousands of Enron documents, his admission effectively condemns the entire partnership. "The law says that if an officer or agent is acting on behalf of the corporation and those actions are illegal, the corporation or partnership is guilty," says diGenova. With Duncan now aiding Justice and sharing details on how his associates helped him, "I don't think the government is going to have any problem meeting its burden of proof," diGenova adds.

Andersen's lawyers will try to win over a jury on nonlegal, commonsensical arguments. If the judge allows this approach -- a big if, actually -- the firm's attorneys will suggest that an entire partnership shouldn't be blamed for the actions of just a few partners and employees. In this bid for so-called jury nullification, the lawyers will try to paint Duncan, whom Andersen fired, as either a rogue operator or someone who misinterpreted the firm's instructions or policy on the destruction of documents.

The jury's call may be based on whether it believes that many others at Andersen deliberately intended to break the law, or whether, at most, a handful of people were consciously out to obstruct investigators. "A jury will look at this and say, 'Was this the Lone Ranger, or was this the posse?'" says Carl D. Liggio, a former general counsel for Ernst & Young who now practices in Chicago. "If the jury thinks it's the Lone Ranger or one or two bad guys, then I think [Andersen] has a good chance of getting an acquittal."


  Furthermore, the defense lawyers will try to undermine Duncan's credibility. By picking away at him in cross-examination, they'll try to blunt the effect of his guilty plea and undercut his testimony. They may argue that he was embittered by Andersen's move to fire him. And they'll probably suggest that government offers of leniency and threats of prison led to his admissions and cooperation. "They'll say he has become a talking puppet," says John C. Coffee Jr., a law professor at Columbia University.

Texas lawyer Rusty Hardin and his defense colleagues will face some high hurdles, however. There's no question, for instance, that tons of Enron-related documents were shredded in Houston and several other places, and that the Securities & Exchange Commission was interested in Enron's fall. Moreover, the hurried destruction is bound to smell bad to a jury whose members probably save their own tax returns and relevant documents for years. Just how self-serving is it for challenge-fearing auditors to do otherwise?

What's more, juries tend to defer to prosecutors when the defendant is a corporation or partnership. "The important thing is to humanize Andersen, to get a jury to understand that even though it's a big firm, it's really men and women who are fundamentally honest citizens whose careers and life savings are on the line," says Benjamin Brafman, a New York lawyer who represents brokerage firms in criminal actions.


  As Andersen fades into corporate history and those many men and women find jobs elsewhere, the legal arguments about the firm could prove to be so much sound and fury signifying nothing. As Andersen's own lawyers once suggested, the firm's dire fate was cast in mid-March, when Andersen and Justice failed to agree on a plea bargain and the government brought its obstruction charge. That accelerated the exodus of clients and drove partners to look elsewhere. The indictment really amounted to Andersen's obituary.

From the Houston trial onward, the rest will be only details -- riveting at times, perhaps, and certainly important to a few Andersenites -- but still only details.

By Joe Weber in Chicago

Edited by Beth Belton

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