In an intense hour of arguments, a majority of Supreme Court justices appeared to agree yesterday that one-time accounting giant Arthur...
WASHINGTON — In an intense hour of arguments, a majority of Supreme Court justices appeared to agree yesterday that one-time accounting giant Arthur Andersen was wrongly convicted of violating a federal witness-tampering law after employees destroyed tens of thousands of documents.
Through their questions, at least five of the justices appeared to support arguments by a lawyer for Chicago-based Andersen that the company was wrongly convicted for inducing employees to destroy documents in 2001 in the weeks before it got a government subpoena for records in the accounting scandal at Enron, the failed energy-trading titan.
Justice Antonin Scalia called the government’s interpretation of the federal law at issue “weird” and, in an incredulous voice, asked a Justice Department lawyer: “You want criminal liability to turn on that? You want someone to go to jail?”
The government’s decision to charge Andersen with witness tampering, and the firm’s subsequent conviction, helped lead to the downfall of the company, once one of the leading and most respected accounting firms in the world. More than 28,000 workers lost their jobs, although many found work at other accounting firms, and today the firm has but 200 employees handling lawsuits after the firm’s virtual demise.
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Justice Anthony Kennedy said that to uphold Andersen’s conviction could have far-ranging effects on “every major corporation or small business in this country,” because most have policies similar to those of Andersen on document destruction and retention.
Justices Sandra Day O’Connor, David Souter and Stephen Breyer also suggested that they saw serious problems with Andersen’s conviction, though each offered different reasons.
Under tough and pointed questioning, Justice Department lawyer Michael Dreeben insisted that Andersen in October 2001 illegally told employees to begin shredding the documents to hide possible wrongdoing, “not because it was preoccupied with neatness.” It knew government investigators would need the materials for upcoming investigations, he said.
“No other company in the country would do this,” Dreeben said of the document destruction. “This is an extraordinary case.”
But Maureen Mahoney, Andersen’s lawyer, argued yesterday that Andersen had done nothing wrong and that the government’s interpretation of the law could make common corporate conduct a crime.
Most companies have policies similar to Andersen’s on destroying and retaining documents, she argued. Those companies also could be found guilty for failing to retain documents if they were subjected to a government investigation in the future, she noted in court papers.
Andersen was convicted in June 2002 of witness tampering after a jury found that lawyers for the company “corruptly” persuaded employees to destroy documents that could be relevant to a looming investigation by the Securities and Exchange Commission.
But Mahoney argued that had the jury been properly instructed on the law, it never would have convicted Andersen.
She argued that the lawyers did nothing wrong and did not “corruptly” persuade employees to destroy documents when they reminded them of the firm’s long-standing document retention policy. The policy called for employees to retain final memos and documents and destroy drafts and notes.
To “corruptly” persuade, Mahoney argued, the company would have had to induce employees to violate the law or to offer bribes. The company did not do that, she said. It is not illegal obstruction of justice for an employee to destroy documents before an official proceeding is under way, she said.
In Andersen’s case, no official proceeding had begun when employees were shredding documents, only an informal SEC staff investigation. When the firm received a subpoena from the SEC for records related to its audits of Enron, it stopped destroying documents, Mahoney said.
The case against Andersen began in 2001, when Enron’s problems and accounting irregularities started becoming public. The giant energy-trading company was Andersen’s largest client and relied on the firm for auditing, accounting and consulting advice. In October that year, Enron got a letter from the SEC informing it that the agency had begun an informal investigation.
That month, lawyers for Andersen began reminding employees of the firm’s document retention policy. Employees then shredded the massive amounts of documents.