Wednesday, June 1, 2005
The Supreme Court clearly foreshadowed its decision in the Arthur Andersen case (opinion here) when the Justices uniformly expressed concern about the scope of the government's argument, which would sweep much lawful activity, particularly the advice of lawyers, within the definition of "corruptly persuades" in Section 1512. I am hesitant to read too much into the Court's castigation of the position of the United States as a validation of what Andersen did in the Enron engagement. The Court did not hold that Andersen was not guilty of the offense, and there was no issue before the Court regarding the sufficiency of the government evidence. While the opinion was certainly negative regarding the strength of the government's case, that needs to be viewed in the context of a decision about whether the jury instructions were sufficiently flawed to require reversal of the conviction. While the Chief Justice's opinion -- which may well be one of his last decisions for the Court -- does not mention harmless error, that is the standard for judging mistaken jury instructions. The Court is concerned with whether the jury might have reached its decision based on an improper interpretation of the law, so that the strength of the government's evidence is important, but it never said that Andersen was not guilty of the crime. One can question whether the government would win a retrial -- and I'm certainly hopeful that the case will end at this point because further proceedings would be meaningless given the state of the firm -- but the fact remains that it can pursue the charges.
Was Arthur Andersen picked on unfairly? Again, the wisdom of charging the firm with a crime is open to question, but Andersen was not an unwitting innocent. It began shredding documents once Enron began to collapse, and continued to do so throughout the period until it received the SEC subpoena. The repeated admonitions to Andersen employees to follow the firm's "document retention policy" without an explicit directive not to destroy any records was at least misguided, and quite possibly a cynical signal to get rid of as much of the documentation as possible. One cannot view the conduct of Andersen's legal department as a template for how to handle a potential government investigation. While the Court notes that many firms have such policies, a lawyer takes a significant risk if he or she permits an organization -- especially an accounting firm -- to destroy documents in the face of an impending government investigation and a potential client meltdown. Of course, there is much 20-20 hindsight involved because no one knew how quickly Enron would be enveloped by its fraudulent transactions, but a cautious lawyer will assume the worst and work from there.
The Enron relationship was not Andersen's first brush with problematic accounting, and the firm's once pristine reputation had already been sullied by other accounting engagements in which significant problems arose (e.g. the Baptist Foundation lawsuit in Arizona, the Sunbeam/SEC action). While that alone does not justify bringing criminal charges against the firm, its conduct certainly raised questions about whether it had obstructed justice to avoid implicating itself in another client's fraud. One can question the prosecutorial judgment whether to file charges, but I don't think the factual basis for the charge is open to serious question.
Finally, I wonder whether the Chief Justice's opinion will spawn the "Mom would have done the same thing" defense. The opinion notes, "Indeed, 'persuad[ing]' a person 'with intent to . . . cause' that person to 'withhold' testimony or documents from a Government proceeding or Government official is not inherently malign. Consider, for instance, a mother who suggests to her son that he invoke his right against compelled self-incrimination, see U. S. Const., Amdt. 5, or a wife who persuades her husband not to disclose marital confidences, see Trammel v. United States, 445 U. S. 40 (1980)." Obstruction cases can now feature references to each person's mother, and whether she would have taken the same approach. My mother would no more tell me to assert the Fifth than root for the New York Yankees (she was Worcester Irish through and through). (ph)
UPDATE (6/1): Blog co-editor Ellen Podgor is quoted in stories about the Andersen decision in the New York Times (here), Wall Street Journal (here), and Legal Times (here). That's a hat trick, if we still had hockey. (ph)