CrimProf Blog

Editor: Kevin Cole
Univ. of San Diego School of Law

Thursday, November 24, 2005

U.S. Abandons Prosecution of Arthur Andersen

From "The Justice Department [on Tuesday] abandoned its prosecution of Arthur Andersen LLP, walking away from one of the signature cases in its drive to eradicate corporate fraud. The announcement came six months after the U.S. Supreme Court tossed the accounting firm's 2002 conviction on obstruction-of-justice charges related to its work for client Enron Corp. In a 9 to 0 decision, the court ruled that the jury instructions were so broad that jurors could have found Andersen guilty even if officials did not intend to break the law and impede a looming investigation.

Andersen's indictment sent clients scrambling for the exits and quickly led the firm to shut its doors -- at a cost of 28,000 jobs in the United States...Andersen came under intense scrutiny in 2002 amid disclosures that the firm had shredded tons of Enron-related documents as investigators probed accounting troubles at the Houston energy trader. Several jurors said they voted to convict Andersen based on evidence that an in-house lawyer had tampered with language in a memo about Enron.

The controversy served as a catalyst for a series of significant changes to the accounting industry, which had been largely self-regulated for more than 70 years. Congress imposed new criminal penalties on auditors who destroyed or tampered with work papers. It also created an independent oversight board to monitor the work of accounting firms and inspect their operations.

"It was a wake-up call," said Donald T. Nicolaisen, who served as the chief accountant at the Securities and Exchange Commission until last month. "I believe that wake-up call has been largely heeded. . . . It has been a period of very dramatic change, and mostly good change."...Critics of the government's aggressive efforts to crack down on business wrongdoing say the Andersen decision is the latest signal that prosecutors have overreached in an effort to boost investor confidence and calm the markets." More from the Washington Post. . . [Mark Godsey]

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