Posted on 04/28/2005 2:35:09 AM PDT by infocats
WASHINGTON, April 27 - The federal government had a hard time three years ago obtaining a conviction of Arthur Andersen for having shredded its Enron documents as the energy company, its major client, was imploding. A jury in Houston took 10 days and declared itself deadlocked before convicting the accounting firm of a single criminal count of witness tampering.
But the challenge the government faced then looked easy compared with the one confronting it in the Supreme Court on Wednesday morning as the justices heard Arthur Andersen's appeal. The justices were so clearly sympathetic to Andersen, with Justice Antonin Scalia at one point describing the government's theory of the case as "weird," that the only question by the end of the argument appeared to be how quickly the court would produce an opinion overturning the firm's conviction.
That would be of little practical benefit to Andersen; the conviction was a corporate death sentence for the firm. It once had 28,000 employees and now has a skeleton staff of 200 engaged in closing down the firm's affairs.
The appeal is the first case generated by the recent corporate scandals to reach the Supreme Court. A reversal of Andersen's conviction would not necessarily have much prospective importance for cases that arise in a similar context - namely, a company's behavior when an official federal proceeding, in this case an investigation by the Securities and Exchange Commission, is on the horizon but not yet a reality. That is because a subsequently enacted statute, the Sarbanes-Oxley Act, which was passed largely in response to the Enron collapse, makes it clear that companies must retain documents in such a situation.
Andersen is arguing that no such legal obligation existed in 2001 when, in the name of carrying out a previously ignored "document retention" policy, it destroyed a huge number of documents related to its work for Enron. Andersen employees "honestly believed this was permissible conduct," Maureen E. Mahoney, representing the accounting firm, told the court.
Michael R. Dreeben, the deputy solicitor general who argued for the government, said that Andersen had invoked its document policy "as a pretext and cover to clean up and purge the files." He added, "It was not because the company had suddenly become preoccupied with neatness."
Although the government's belief was that Andersen was deliberately obstructing the S.E.C., it could not bring an obstruction of justice charge under the law at the time because no "official proceeding" had been under way when the documents were destroyed.
Instead, it charged the company with violating a 1982 law, the Victim and Witness Protection Act, which makes it a crime for one person to "corruptly persuade" another to destroy documents in order to make them unavailable to the government.
On the government's theory, the violation occurred when Nancy Temple, an internal lawyer for Andersen who herself was not prosecuted, advised her colleagues to follow a policy of not retaining working papers and other audit material.
The precise legal issue in the appeal, Arthur Andersen v. United States, No. 04-368, is whether the jury in Federal District Court in Houston was properly instructed on the meaning of "corruptly persuade." In the government's view, which the district court and the United States Court of Appeals for the Fifth Circuit accepted, "corruptly persuade" means to persuade with an "improper purpose," without the need to prove that the parties knew they were violating any law.
In both lower courts as well as in the Supreme Court on Wednesday, Andersen argued that to establish criminal intent, the phrase must mean "to induce through improper means," like bribery, or to persuade a person to violate a separate legal duty of which the person was aware. In omitting either requirement, the jury instructions "deprived the term 'corruptly persuade' of its traditional and ordinary meaning," Ms. Mahoney said.
Ms. Mahoney, herself a former deputy solicitor general, clearly made headway during her 30 minutes. By the time Mr. Dreeben stood up to speak, the justices were ready with pointed comments and questions. It was also evident that they had read briefs submitted on Andersen's behalf by organizations ranging from the United States Chamber of Commerce to the National Association of Criminal Defense Lawyers, which argued that the government's position would chill corporate counsel from giving vigorous legal advice. As the briefs make clear, the case is widely viewed in both the corporate and legal sectors as an instance of prosecutorial overreaching.
Addressing Mr. Dreeben, Justice Anthony M. Kennedy described the government's approach as "a sweeping position that will cause problems for every business in this country." He added, "I just don't understand it." A moment later, Justice Kennedy said the government's position reminded him of "the old Army rule, make two copies of everything you throw out."
"That's what you'll have to do," Justice Kennedy said.
Justice Stephen G. Breyer told Mr. Dreeben that "if I were a juror, I might think that what is missing here is dishonesty of purpose."
And Justice Sandra Day O'Connor asked: "If this thing is so confusing, how is a businessperson supposed to know what to do? How's a lawyer to know?"
When Mr. Dreeben referred to the Sarbanes-Oxley Act and started to explain that the Andersen case "threw a spotlight" on the need for additional legislation, Justice Scalia interrupted. "I suggest that it throws a spotlight on the fact that your theory is wrong." Noting that under the witness tampering statute, a person could be prosecuted not for actually destroying documents but only for persuading someone else to do so, Justice Scalia said, "That's weird."
Even before the argument, the Supreme Court had sent signals that the government might expect a hard time. After Andersen filed its appeal last September, the solicitor general's office told the court that it would not respond unless directed to do so. The government employs the "waiver of response" to indicate to the court that a case is inconsequential and not worthy of the government's effort.
But the justices evidently did not agree, because they directed the solicitor general to respond. The government then filed a brief urging the court not to accept the case, advice the court ignored when it granted the appeal in January, in time for a decision in the current term.
"I suggest that it throws a spotlight on the fact that your theory is wrong."
Heh.
It's hard to figure out the Supreme Court's reasoning on this one.
Arthur Anderson was at the heart of the Enron, Global Crossing, and World Com corporate scandals, pulling the accounting strings like some twisted avaricious puppeteer. This was not only an assault on the workers of those corporations, investors and Wall Street, but on the very pillars of Capitalism itself.
Amen, brother. Whom do we trust if not the auditor watch-dogs? I blame them more than the companies themselves.
Seems very similar to the Clinton crimes-every thinking person knows they're guilty but court of law type proof is elusive.
It really is scandalous. The S.E.C. was either utterly asleep at the switch or corrupt, or both, but there is probably more than enough blame to go around to other agencies as well. It's too bad that NYS Attorney General Elliot Spitzer wasn't in charge of that investigation.
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