The Justice Dept. Is Just Warming Up
Emboldened by the victories it has scored so far in its prosecution of Arthur Andersen -- first the guilty plea it wrung from ex-auditor David B. Duncan and now the June 15 obstruction-of-justice verdict against the firm itself -- the U.S. Justice Dept. is making it clear that it's far from done with Andersen or the big fish, Enron.
Look for individuals who were central figures in the case -- foremost among them, Andersen lawyer Nancy Temple -- to come under legal assault next, as prosecutors try to drive home the message that sloppy auditing and efforts to cover it up will not be tolerated. As Leslie Caldwell, the Justice honcho who coordinated the Andersen prosecution effort told reporters, Justice "is not finished with Arthur Andersen."
Arthur Andersen itself is finished, for all practical purposes. Over the last six months, it has dismantled its international network and allowed thousands of staffers to quit to join rival firms. Following the Houston jury's guilty finding, Andersen announced that the verdict "will effectively end the firm's audit practice." Even as it vowed to appeal the case -- saying simply that the "verdict is wrong" -- Andersen said it would "help transition its remaining clients to other accounting firms" by Aug. 31, the date by which the conviction judgment is expected to be formally entered.
Whether Andersen helps them or not, few clients will stick with the tarnished accounting giant, especially since the conviction will deprive it of the right to practice before the Securities & Exchange Commission. But, even after killing off the nation's fifth-largest accountancy, Justice can't afford to ease up.
For one, it appears determined to send the nation's auditors and accountants the message that individual wrongdoing won't go unpunished. A conviction against a firm disperses blame across a faceless corporation, but putting an individual in the dock makes it clear who's responsible.
Auditors or lawyers who might have been inclined to break the rules for big-paying clients -- figuring they can count on their firm's backing -- certainly will think twice about doing so now, after seeing Duncan's travails and the personal cost his indictment and guilty plea has brought.
That's why Justice may well pursue other Andersen staffers whom it has suggested were culpable in the firm's trial. Temple, an Andersen attorney who declined to testify in the Houston case on the grounds that she might implicate herself, seems a likely target. If Justice now takes further action against her, its message will be even clearer: "Once an investigation is under way -- even before you receive a subpoena -- you better not destroy documents," says Joseph E. diGenova, a former federal prosecutor now in private practice in Washington.
Temple repeatedly told Andersen staffers to adhere to the firm's document-retention -- read "destruction" -- policy, and that triggered the widespread shredding of documents related to client Enron. It was her order that Duncan claimed he followed in dictating the shredding frenzy at the firm last fall.
Beyond that, Temple also signaled that she knew a government probe was likely when she wrote to Duncan on Oct. 18 that he should remove her name from an Enron auditing memo because it would boost "the chances that I might be a witness, which I prefer to avoid."
Several jurors, discussing the verdict with reporters afterward, said Temple's actions were the "smoking gun" they needed for the guilty finding. Even those who dismissed the shredding as overzealous compliance with established policy couldn't forgive Temple's efforts to change the record. She was the "corrupt persuader," jury foreman Oscar Criner said, adding that jurors were unanimous on that point.
Prosecutor Andrew Weissmann, hinting that Temple is vulnerable, said it was "entirely appropriate" that jurors focused on the Andersen lawyer because "she made every effort to sanitize [Andersen's] files."
Astute auditors from now will be hard put to commission any but the most routine document-destruction. Justice maintains that they're better off saving the paperwork -- especially if it could be the subject of legal action -- rather than destroying it in a way that seems calculated to expressly avoid investigators. Auditors and, for that matter, lawyers who don't save every piece of paper connected to their work now are surely taking big chances.
Some critics of the government's efforts fear that the Andersen conviction will spawn plenty of unintended bad practices. Carl D. Liggio, a Chicago attorney who served for years as general counsel to accountancy Ernst & Young, recalls when lawyers were denied pens and paper as they attended meetings in the wake of a similar case in the early 1970s. "They were telling people, 'don't put anything down,'" Liggio recalls. His view of the Andersen case is that it will do far more harm than good. Says Liggio: "the government used a 20-millimeter howitzer to kill a fly here."
Just how hard Justice plans to press Temple or others now may depend on what it expects to get from them about Enron -- the major target in the whole affair. Duncan, for instance, may find himself serving far less than the 10-year sentence he could face if his cooperation helps prosecutors them convict Enron executives.
Similarly, if other Andersen executives can help in the Enron investigation efforts, Justice may bring charges against individuals but cut them deals for leniency. Typically, prosecutors pressure participants in alleged crimes to turn on accomplices by bringing indictments while offering mercy in sentencing.
In the end, Andersen may prove to be just a steppingstone on the road to Enron. But if anyone had doubted how far the government is willing to go in its post-Enron effort to protect shareholders from corrupt practices, these legal victories should quell those qualms. Indeed, Justice may be just starting.
By Joseph Weber in Chicago, with Kate Murphy in Houston and bureau reports
Edited by Douglas Harbrecht