On March 21, 2002, William McCusker led a Philadelphia pep rally for employees wearing orange T-shirts proclaiming: "I am Arthur Andersen...
On March 21, 2002, William McCusker led a Philadelphia pep rally for employees wearing orange T-shirts proclaiming: “I am Arthur Andersen.”
It was a desperate and futile effort to save what was the nation’s fifth-largest accounting firm.
“Nine hundred local Arthur Andersen people, with our 84,000 colleagues around the world, are still getting up early and working late — putting our clients first,” McCusker, then an Andersen partner, bellowed to the crowd.
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He shouted these questions:
“Who told the Department of Justice of the document shredding in our Houston office? Who took immediate action to fire or demote those involved? Who pointed out their own errors in judgment in the Enron matter? Who has cooperated fully?” To each question, the employees roared: “Andersen did!”
McCusker, now an executive vice president of Right Management Consultants in Philadelphia, called yesterday’s Supreme Court decision to overturn the Anderson conviction “vindication of Andersen, a firm of integrity run by people of integrity.”
The decision nullified with a single stroke one of the government’s biggest victories in the corporate scandals that climaxed the bull market of the 1990s.
The court ruled unanimously the Houston jury that found Arthur Andersen guilty of obstruction of justice had been given overly broad instructions from the federal judge who presided at the trial.
As a result of the faulty instructions, the justices ruled, the firm was convicted without proof that its document shredding was deliberately intended to undermine a looming Securities and Exchange Commission (SEC) inquiry in fall 2001.
The judge should have instructed the jury that the law required the government to prove Andersen knew it was breaking the law, the court ruled.
“Indeed, it is striking how little culpability the [judge’s] instructions required,” Chief Justice William Rehnquist wrote in the opinion for the court. “For example, the jury was told that, ‘Even if [Andersen] honestly and sincerely believed that its conduct was lawful, you may find [it] guilty.’ “
Legal analysts said the decision was a major setback to the Justice Department’s corporate-crime prosecutions.
“To lose a case like this is huge,” said William Mateja, a former official of the Justice Department’s corporate-fraud task force. “Arthur Andersen was the poster-child case of all the corporate-fraud cases.”
More broadly, some lawyers said the court’s decision shows its sympathy for corporate America’s view that companies should be freer to engage in routine document destruction — often under the ironic title of “document-retention policy.”
That is important, because the statute under which the Justice Department went after Andersen was amended by Congress in the 2002 Sarbanes-Oxley law to make it easier for the government to prosecute wrongful document destruction.
“The Supreme Court may be using this as a vehicle to signal some concern” about Sarbanes-Oxley, said Henry Hu, a professor of corporate and securities law at the University of Texas.
But Mateja, now in private practice, said Congress’ intent to prevent improper document destruction was clear. “I’m still going to counsel clients to be extremely careful if and when they dust off document-retention policies,” he said.
Andersen was in charge of auditing the books at Enron, the high-flying Houston energy conglomerate whose financial meltdown in 2001 wiped out the savings of thousands of employees and small investors, and politically damaged the Bush administration, with which Enron Chairman Kenneth Lay had been close.
As Enron’s collapse became public, Nancy Temple, a lawyer for Andersen, sent an e-mail Oct. 19, 2001, reminding employees of the company’s policy of routine document shredding. Two tons of documents were destroyed until the SEC formally notified Andersen on Nov. 9 that it was under investigation.
In prosecuting Andersen, the government argued the shredding was done to prevent the SEC from finding out about such matters as Andersen’s role in helping Enron puff up reported returns of “off balance sheet” activities by units known as “Raptors.”
Although a rebuke to the government, the court’s decision yesterday is little comfort for Andersen and its former employees.
McCusker is still bitter about the Justice Department’s decision to indict the company, instead of focusing on a few wrongdoers in Houston.
“Other executives have gotten into hot water, and their whole firms weren’t indicted,” he said.
The indictment killed the firm, he said. Under that cloud, partners and clients began defecting.
McCusker said Andersen people have moved on to success with other firms, “but not without much pain and suffering.”
Retirees and widows lost insurance coverage. Partners lost their investment in the firm worth, in some cases, “hundreds of thousands of dollars,” McCusker said.
What’s left of the company said the ruling may help it in its main remaining task: fighting shareholder lawsuits related to its work for Enron, Global Crossing and other clients.
“We pursued an appeal of this case not because we believed Arthur Andersen could be restored to its previous position, but because we had an obligation to set the record straight and clear the good name of the 28,000 innocent people who lost their jobs at the time of the indictment and tens of thousands of Andersen alumni, as well as to help secure a fair resolution of the civil litigation facing the firm,” company spokesman Patrick Dorton said.
Acting Assistant U.S. Attorney General John Richter said prosecutors are examining the decision and will “determine whether to retry the case.”
But legal analysts said that is unlikely, given the constitutional ban against double jeopardy and the tougher standard of proof required by yesterday’s decision.
From The Washington Post. Information about William McCusker provided by Knight Ridder Newspapers.
Former Justice Department official