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Arthur Andersen: Called to Account

June 17, 2002 at 12:00 AM EST
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MARGARET WARNER: It was the first conviction in the Enron scandal. Enron’s former accounting firm, Arthur Andersen, was found guilty Saturday of one count of obstruction of justice. The Houston jury took ten days to reach its verdict. Andersen said it would appeal, but also announced it will stop auditing publicly traded companies by August 31. Here to walk us through the verdict and its ramifications are Kurt Eichenwald, who covered the trial for the New York Times, and Robert Mintz, a former assistant U.S. Attorney, now in private practice in New Jersey.

Welcome, gentlemen. Kurt Eichenwald, beginning with you, remind us briefly what this case was about. On what basis was the government charging Andersen with obstruction of justice?

KURT EICHENWALD: Well, this all started back in October of last year. Andersen… some employees at Andersen had shredded several thousand documents and deleted thousands of e-mails related to Enron at a time that they knew the Securities & Exchange Commission was conducting a preliminary investigation into that company. This was discovered by Andersen in January; it was announced by them. The information was provided by the Justice Department — or provided to the Justice Department. They conducted an investigation and concluded that Andersen itself should be indicted. Ultimately that’s not what the case turned on. It was a very interesting element, where it turned. But I think that’s for later in this discussion.

MARGARET WARNER: Well actually, let’s go to that next because the document shredding, which we heard so much about and which the government’s star witness David Duncan from Andersen was testified about, wasn’t at the heart of why the jury found them guilty. Explain what they did find them guilty on.

KURT EICHENWALD: Well, I mean, on some levels it’s sort of like there was a bank robbery trial and they convicted on the basis of what mask the man wore. You had a — there was a memorandum that had been written by this individual David Duncan. And that memo described some discussions he had with an official at Enron, which declared that Enron in an announcement they were going to make had included information that was misleading. A lawyer for Andersen reviewed that memo, said, you know, “Edit that portion of the memo out — also took some other words out. That is what the jury concluded was the crime here: That the Andersen lawyer had done so for the purpose of keeping that information from the SEC. The way it had actually been argued was to demonstrate that these kinds of draft memos that existed provided information that the SEC would have wanted and later on when there was shredding, you know, drafts were shredded and it showed why there would be a motive to do this.

It never sounded to me like they were describing that single act in itself as a crime, but rather a part of the whole leading up to the shredding. But juries are allowed to make their decisions on the facts they interpret. They found in that instance that the lawyer had a criminal intent and so they convicted.

MARGARET WARNER: Now there was a point last week, was there not, in which it looked like the jury might not even reach a verdict?

KURT EICHENWALD: They announced on Wednesday that they were deadlocked. And the judge came back with something that’s called an Allen charge, sometimes called the dynamite charge, where she basically tells the jury, you know, a lot of money has been spent on this. Everybody is ready for a verdict. You are a very competent jury. We’re not going to find one that’s more competent. We’re not going to find one that’s more responsible. We’re not going to find one that works harder. If you cannot reach a verdict, everybody has to do this again, spend more money on this process so I urge you to go back, reconsider what you’re thinking. Don’t let go of your personal convictions but look at it in the light of what your other members of the jury are saying. They went out. They came back two days later with the conviction.

MARGARET WARNER: But only after also sending out, I gather, what, last Thursday a rather puzzling question to the judge. Tell us briefly about that.KURT EICHENWALD: Under the law for obstruction of justice, as charged in this case, the jury had to find that someone within Andersen corruptly persuaded someone else to destroy documents or alter documents for the purpose of impeding the Securities & Exchange Commission’s investigation. So this search for the corrupt persuader became a large part of the case. The defense argued there was no corrupt persuader; there was no crime. The government argued that there were five corrupt persuaders.

The jury came back on Thursday with a question that was really intriguing, which was basically, “Can we convict if all of us believe there was a corrupt persuader?” — this isn’t the language they used, but it’s close– “if all of us believe there was a corrupt persuader at Andersen but we don’t agree who it was, can we convict?” This led to two days of legal argument between the government and Andersen and ultimately the judge said yes, you all can have different theories as to who the corrupt persuader is and still convict the firm. Ultimately that proved to be irrelevant because the jury agreed that the corrupt persuader in this case was the lawyer who was dictating the edits in the memo.

MARGARET WARNER: All right. Let me get Robert Mintz in here. What’s your view of this verdict and how unusual is it for a jury to essentially come up with its own theory to justify a guilty verdict?

ROBERT MINTZ: Well, it was a very important verdict for the government. The government really from the outset had a tremendous amount to lose here by going to trial and, frankly, not all that much to gain but by salvaging a conviction here, it has allowed them to put this behind them, to basically vindicate their decision, which had been much criticized about proceeding with this prosecution, and focus the thrust of their investigation on Enron.

In terms of the question of how unusual is it for a jury to listen to evidence and come up with their own theory in order to convict, it does happen. Jurors will sometimes sit there through trial, they will hear the same evidence, listen to the same testimony that’s being presented by the lawyers, at the end of the case, hear arguments from both lawyers as to what the lawyers believe are the important facts that will ultimately determine the jury’s decision, and the jurors then go back into the jury room and the 12 men and women sift through all the evidence. They listen to the law that the judge has charged and then they decide on their own that the crucial facts and the crucial evidence may be very different from that which was presented by the lawyers.

MARGARET WARNER: Now, Andersen said it would appeal. And I have two questions on that. One, do you see any good grounds here in your opinion for appeal; and two, if Andersen is essentially going out of business, which is what the company is essentially saying, can it appeal? Is there any appeal possible?

ROBERT MINTZ: Well, the real question on appeal that the appellate lawyers and legal pundits around the country that would have been waiting to watch very closely was this question of unanimity, because there was no clear legal precedent on the question of whether every juror had to agree as to who the corrupt persuader was. It would be very interesting to see what the court of appeals did with that issue. There would have been some very compelling arguments to be made both by the government and by the defense on that issue. But, as it turned out after focusing in on a very fine point of law, a question that was almost something that you would expect to see on a law school final exam, the judge gave the instruction that they did not have to be unanimous and at the end of the day the jury decided that that was not relevant and they focused instead on Nancy Temple and decided that she was in their unanimous opinion the corrupt persuader.

So in terms of appellate issues — unfortunately for those of us who would love to see how that turned out on appeal — that is not likely to be a centerpiece of Andersen’s appeal. I would suspect that the issue that is going to be the most compelling point for Andersen goes back to the very beginning days of the trial. The government asked and the judge ultimately granted the government’s request to inform the jury of two prior settlements that Andersen had entered into. That would be the Sunbeam and the Waste Management settlements. And generally, in a courtroom a prior bad act is inadmissible; that is, a jury is not entitled to infer guilt on the charges that are before them simply because a defendant, in this case a partnership, had committed a prior bad act.

But there is an exception to that rule, and the exception is that if the government needs to use these prior bad acts not to show that they acted in conformity with the prior bad act, but merely to show motive or intent, then it’s admissible. And there’s no question that the admission of those prior bad acts severely prejudiced Andersen, but the test is whether or not the probative value outweighs the prejudicial value. And I think at the end of the day here the court of appeals is going to uphold the judge’s ruling and find that that evidence was properly admitted.

MARGARET WARNER: Before we run out of time I want to get your view on what the significance of this verdict and even some of the evidence in the case, what it is…what it says for the government’s case against Enron itself and Enron executives.

ROBERT MINTZ: From the outset, this prosecution was a building block towards the ultimate Enron prosecution. The conviction here was absolutely vital. Without a conviction, it would have been a rejection of the government’s entire theory of prosecution and more importantly in terms of recruiting future cooperating witnesses, the David Duncans and the Enron prosecution, those people I think would have looked very carefully at all of the evidence that was against them and would have had to have stopped and thought very carefully about joining the government’s team in the event that Andersen here was acquitted.

This conviction, though, gives the government some very crucial momentum that they will carry over into the Enron investigation, and I think it will assist them in recruiting key cooperators, which is going to be a vital part to that case because the Enron case is far more complicated than we saw in Arthur Andersen, and without a number of insiders who can walk the jury through those complicated series of financial transactions it’s going to be very difficult for the government to prove its case.

MARGARET WARNER: All right. Well, Robert Mintz and Kurt Eichenwald, thank you both very much.