Arthur Andersen

   In a very short (13 page) opinion, the Supreme Court reversed the criminal conviction of Arthur Andersen for the obstruction of justice.  A jury had convicted Arthur Anderson in October of 2002, a the height of the disgust over the 2002 corporate scandals.  The judge sentenced the company to a $500,000 fine and five years probation.  More damaging was the effect of the criminal conviction on the company;  it had to surrender its accounting license and could do no public audits until state authorities re-instated the license. 

     The practice effect of the 2002 conviction was huge.  A company with 28,000 employees world wide went out of business.  The 2005 opinion of the Supreme Court is too late.  Now we have the almost comical decision of the United States District Attorney on whether he or she will retry the case again.

     There are many lessons here.  The most important perhaps is the case's effect on magnifying the power of indictments against financial companies, as opposed to executives in those companies.  An indictment against a financial company is often a death sentence itself -- even a trial is unnecessary.  Financial companies depend on the confidence of market participants, participants that can and do leave very very quickly when things go wrong.  Threats to a financial company's reputation can create the stampede out the door that is these companies' undoing.

   When federal prosecutors threaten finanical companies with prosection, the companies must acquiese, the companies' cooperation is coerced.  Prosecutors demand that companies turn in their own employees, waive attorney client privilege, refuse to comply with executive imdemnification or defense agreements, and fire managers.  The company complies, hoping to stave off any indictment --"Look what happened to Arthur Andersen."

   Arthur Andersen won in the Supreme Court--- so what, it died three years ago.  Federal prosecutors have a new weapon against financial companies, the threat of indictment, and they have been and will continue to use it --  in our best interests of course.