White Collar Crime Prof Blog

The Aftermath of Andersen

The Andersen conviction, followed by its eventual reversal in the United States Supreme Court, is all history.  But CNN Money reports that a federal judge approved this past week a final settlement in the class action lawsuit that was brought by investors.

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Government Announces That It Will Not Re-Prosecute Andersen

Arthur Andersen, LLP, prosecuted and initially convicted for the alleged crime of obstruction of justice, had its conviction overturned by the US Supreme Court.  CNN reports here that The Department of Justice has now announced that it would not re-prosecute the company. Unfortunately, this turn of events does not assist the many employees who lost their jobs when the government indicted this company.  What three lessons can be learned here -

1. That the government prosecutorial power carries enormous weight, and DOJ needs to recognize its power and use it wisely.

2. That  innocent until proven guilty does not always work in our judicial system; especially when an appellate or supreme tribunal may overturn a conviction and the ramifications of the initial guilt still remain.

3. That using obstruction of justice as a shortcut, as opposed to investigating and prosecuting underlying conduct is not always the easiest avenue to pursue, especially in the long run.

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Mississippi and KMPG

KPMG may have more on its hands than just civil law suits (see post here). The LATimes (Reuters) reports here that Mississippi is considering filing "criminal charges" against KPMG. Will other states follow?  Should states be allowed to bring cases against national companies for criminal charges  where the federal government does not bring the charges?  Could a state bring a company down as was done by the federal government in the case of Arthur Andersen?  Should this be permitted? Stay tuned.

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WLF Program on Andersen

The Washington Legal Foundation has a program here that examines the Arthur Andersen decision.   The program is moderated by the Hon. Richard Thornburgh who asks an initial question with regard to this decision  as to whether is it a "bump in the road or a sea change" in white collar prosecutions. 

The program offers commentary from:

1. Gary Grindler (King & Spaulding) who notes that DOJ needs to consider collateral consequences; 

2.Robert Weiner (Arnold & Porter), who authored the National Association of Criminal Defense Lawyers (NACDL) amicus brief in this case, discusses the impact of this decision on attorneys;

3.Ronald W. Peppe II, Vice President Law & Technology, Association of Corporate Counsel, who brings out the fact that so many documents today are not hard documents, but rather electronic. 

The program covers the topic of how the Andersen decision may influence 1519 cases (Sarbanes Oxley).

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Some Outside Commentary on Arthur Andersen

As one might suspect, there has been interesting commentary on the Arthur Andersen Case.  Some links are below:

Rich Smith, Andersen Innocent?  Think Again (here)

NPR (here)

Floyd Norris, Who Killed Andersen? It Was Suicide, NYTimes (here)

Ann Woolner, Bloomberg (here) (On my quote, the reason we don't know is because the government chose to proceed with an obstruction charge as opposed to investigating any substantive crimes that they may have been considering) (See my Commentary here discussing the problem with taking shortcuts).

Corporate Compliance Blog (here)

DOJ Comments on Andersen

DOJ issued a press release here expressing disappointment, but acceptance in the Andersen decision. It states:

Department of Justice is disappointed in today’s decision by the U.S. Supreme Court regarding jury instructions given in the case, but of course we respect the Court’s decision.

“The Justice Department’s decision to charge Arthur Andersen was based at the time on the determination that the substantial destruction of documents in anticipation of an investigation by the Securities and Exchange Commission violated the law. We remain convinced that even the most powerful corporations have the responsibility of adhering to the rule of law.

“We will carefully examine today’s decision and determine whether to re-try the case.”

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A (Slightly) Different Take on the Arthur Andersen Opinion

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)

Commentary on Arthur Andersen Decision

Several things are important to note here-

1. It is a 9-0 decision.  Reaction -  The government had it wrong and the Court thought it clear enough to speak with a single voice.

2.  It only took 11 1/2 pages to write a decision that rejects two government arguments (that knowingly does modify "corruptly persuades" and a nexis requirement is required)

3. This decision sends a message that the Court is troubled with cases brought on a mere thread of criminal culpability. This is particularly important in white collar decisions as the law is complex, people have trouble understanding it, and criminal liability should only be imposed when there is a proper mens rea.

4. Document retention policies deserve some respect- the Court specifically says that they are "common in business."  To say that one "impedes" the government merely because they have and use such a policy is wrong.  More should be required.  Likewise to say that you can be guilty of obstruction if you merely "impede" the government is absurd.  The Court goes so far to use the example of "a mother who suggests to her son that he invoke his right against compelled self-incrimination."  Obviously this should not be considered as obstructive conduct. Equally important to lawyers is that they be permitted to properly advise clients without fear of being accused of obstructing justice.

5. What happened here -  The government chose to bring an obstruction of justice charge, usually an easy shortcut way of proceeding, as opposed to investigating and proceeding on substantive charges that might exist.   Reaction - Taking shortcuts runs risks.

6. What effect will this decision have on pending cases and future cases - After the Arthur Andersen indictment, Congress amended the statute.  Obviously because of ex post facto the government cannot proceed against Andersen under the new statute for the alleged conduct. Congress also added a new statute 18 U.S.C. s 1519. These amendments and the new statute were previously discussed here.  Section 1512 and 1519 both have the word "knowingly" in them, so some of the findings of this Court may still apply.  The Court's decision emphasizes with italics the word knowingly when it states that "Section 1512(b) punishes not just corruptly persuad[ing]  another, but 'knowingly . . . corruptly persuad[ing]' another."

7.  Sorry Martha, but this case may not be of much assistance in your appeal.  Martha Stewart was indicted under section 1505 which has the word corruptly but does not have the modifier "knowingly." (see footnote 9 of the Court's decision that distinguishes obstruction cases brought under 1503 and 1505).

The moral of the story - the government gave a corporate death sentence here, and when you are dead there isn't much that can be done even when it is later proved that you were wrong.  The truly unfortunate part here is that innocent employees suffered.

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Andersen Conviction Reversed by High Court

Not surprisingly, the Supreme Court in a 9-0 decision reversed the conviction of Arthur Andersen LLP. In a 11 1/2 page opinion authored by Chief Justice Rehnquist, the Court found that the "jury instructions failed to convey properly the elements of a 'corrup[t] persuas[ion]' conviction under sec. 1512(b)."  The Court also found that the jury instructions improperly told the jury that "it did not have to find any nexus between the 'persua[sion]' to destroy documents and any particular proceeding."

It's a brief opinion, but there is a lot to say about it.  Commentary on the decision will be forthcoming.

Decision is here - Download 04-368P.pdf

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Arthur Andersen Argument Report

An AP story (here) reports on the oral argument this morning in Arthur Andersen v. United States.  It appears that Michael Dreeben from the Solicitor General's office got the tougher questions from the Court, including -- and this will shock many -- questions expressing incredulity from Justice Scalia.  A transcript of the oral argument should be available within the next two weeks, and I will post a link. (ph)

The Final Rounds for Arthur Andersen

Arthur Andersen LLP appears to be nearing the end of its run as a litigant, perhaps its final acts as a legal entity.  Tomorrow, the Supreme Court concludes its oral argument schedule for the 2004 Term with Arthur Andersen v. United States (earlier post here).  The Andersen Reply Brief filed last week is available here, and the fight concerns the proper interpretation of "corruptly" under 18 U.S.C. Sec 1512.  Today, Andersen was the final defendant to settle in the WorldCom securities fraud class action litigation that has resulted in payments by investment banks and Worldcom's former directors of over $6 billion (earlier post here).  According to a Wall St. Journal article (here), Andersen agreed to pay $65 million, plus 20% of any funds paid out to its U.S. partners after the partnership is finally wound up.  No indication in the settlement documents how much that could be, and there is a chance it could be a multiple of zero. Even a reversal of the criminal conviction, which would probably be the end of the criminal case because the government is unlikely to retry the organization, will not bring Andersen back.  A sad end to a once-great name, at one time the best of the Big Eight accounting firms for those who remember back that far. (ph)

Arthur Andersen Argument in the Supreme Court This Wednesday

Arthur Andersen's appeal of its obstruction of justice conviction in the Supreme Court will be argued this week, and as discussed in this excellent post on the SCOTUS Blog (here), the first team will be speaking to the court: Maureen Mahoney from Latham & Watkins and Michael Dreeben from the Solicitor General's office.  SCOTUS Blog notes the rhetoric of the parties in their briefs:

At bottom, though, the rhetoric the parties employ tells the whole story. Andersen characterizes its conviction as an example of creative government lawyering that, if allowed to stand, will criminalize “common conduct undertaken without any consciousness of wrongdoing.” The government, in stark contrast, portrays Andersen’s response to Enron’s downfall as a unique and calculated attempt to convince its “employees to lay waste to vast troves of documents when a government investigation [was] viewed as highly probable.”

A good article from Legal Times, available on Law.Com (here), discusses the view of corporate counsel on the case.

My predictive abilities are worse than a coin toss, but I doubt there will be a unanimous opinion from the Court because the lower courts have struggled to explain "corruptly" in any coherent fashion.  It is a term that defies any easy definition, and often opinions discussing the term say little more than "corruptly means to act corruptly." (ph)

Reply Brief of the United States in Arthur Andersen

The government's reply brief in Arthur Andersen v. United States is here.  In summary, the Solicitor General argues:

The lower courts correctly defined the term "corruptly" in Section 1512(b) as "having an improper purpose" "to subvert, undermine, or impede the fact-finding ability of an official proceeding." The lower courts’ definition is consistent with the purpose-based definition long given to the identical term in the general obstruction-of-justice statute, 18 U.S.C. 1503, on which Section 1512 was based; in other obstruction-of-justice statutes; and in other federal criminal statutes more generally.

Andersen is the last argument scheduled on the Court's calendar for the 2004 Term, scheduled for Wednesday, April 27, and is the only case being heard that day. (ph)

NACDL Files Amicus in Andersen

The National Association of Criminal Defense Lawyers (NACDL) filed an amicus brief in the Arthur Andersen , LLP case pending before the United States Supreme Court.  The brief, available here, focuses on the role of counsel and the effect of this case on attorneys.  In the Summary of the Argument it states in part:

"This case places lawyers at risk of investigation, prosecution, and imprisonment for doing their jobs. When a lawyer represents a client in connection with a potential government investigation, one of the lawyer’s goals may appropriately be to prevent the government from developing evidence against the client. Within the bounds of ethics and the law, that is what lawyers do.

By expanding the definition of "corruptly persuades" in 18 U.S.C. § 1512(b)(2) to encompass legal advice directed to that end, the Fifth Circuit’s ruling will chill zealous legal representation, create potential conflicts between counsel and client, and undermine faith in the privacy of attorney-client communications.

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Andersen Brief Filed

Petitioner Arthur Andersen filed its Brief in the United States Supreme Court and without doubt this will be an interesting case.  The Summary of the Argument states:

"It is plain as day that the Government did not charge Andersen with obstruction of justice for discarding documents during the relevant time period because no official proceeding of the SEC was pending.  . . ."

A paragraph later we see:

"The United States attempted to evade that settled law by instead charging Andersen with 'witness ampering' on the remarkable theory that although it was perfectly lawful for Andersen to have a document retention policy that preserved only the final audit work papers, and perfectly lawful for Andersen's employees and professionals to follow that policy, it was somehow a serious felony for Andersen's in-house attorney and supervisors to remind its employees of the policy."

The legal arguments within this brief cover issues regarding the word "corruptly,"  whether the instruction on the "requisite nexus to an official proceeding," was proper, and the Rule of Lenity.  But a message is also being sent -  how far can the Government go... and did they go too far this time?

The Brief. Download andersen_merits_opening_brief.PDF

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Cert Granted in Arthur Andersen Appeal

The Supreme Court granted cert today in Arthur Andersen v. United States (order list here). See also SCOTUS blog for a discussion of the nine cases in which the Court granted cert today.  The question presented is: "Must Arthur Andersen's conviction for witness tampering under 18 U.S.C. 1512(b) be reversed because the jury instructions misinterpreted the 'corrupt persuasion' and 'official proceeding' elements of the offense?"  The definitions of those terms are notoriously vague (i.e. broad) and the case gives the Court a chance to give a little bit more guidance in the area.  That said, a decision favorable to Andersen could trigger a congressional response.  We will try to post the briefs as soon as possible after they are filed. (ph)

As We Enter 2005 -What to Expect

2005 may be another year with white collar issues in the news.  CNN notes some of what to expect in 2005 in an article titled, "The Return of the $6,000  Shower Curtain."   Some of the things they include, as well as others to expect this year are:

1. First up is the trial of Richard Scrushy that starts in early January.

2. Oral argument in Martha Stewart's case, and perhaps a decision from the Second Circuit. Martha Stewart will finish serving her sentence and the question will be what role will she play in helping with reforms for women in prison.

3. The Arthur Andersen LLP. Petition for Certiorari before the Supreme Court will be accepted or denied.

4. "Ex-WorldCom CEO Bernard Ebbers Jr. will face charges in New York federal court. . ." (CNN)

5.  "Tyco International honchos Dennis Kozlowski and Mark Swartz are due to answer for the second time [on] criminal changes . . ." (CNN)

6.  And yes, maybe some movement on cases involving Enron related individuals, like Ken Lay. 

And a lot more. . .

Wishing everyone a happy, healthy, and peaceful new year!

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Rowland, Stewart, and White Collar Crime

Co-blogger Peter Henning has an op-ed piece in this a.m.'s Hartford Courant titled, "Would You Risk Your Career For Small Change."  He states, that "We often see white collar crimes in which prominent individuals risk their livelihood and reputation for seemingly trivial amounts."  He points out some of the differences from white collar and street offenders.   

Our opinions on Martha Stewart, however, differ.  Where Professor Peter Henning states that "she will be forever known as a felon who lied to the government," I say that her appeal is pending, so lets hold on that judgment. And even if the conviction stands, will she be forever known as he describes, or as someone who has accomplished so much for homemakers throughout the world.  More importantly, will she become known for being someone who helps with reforms on the incarceration of  women?  The feds spent a good bit of taxpayer time and money on this prosecution, and the question in the future may be- was it worth it?

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Government's Response to Andersen's Petition for Cert

The November 5th entry talked about the Petition for Certiorari filed by the defense in Arthur Andersen LLP v. United States.  The government has since filed a brief in opposition, breaking down the defense's one issue into five separate issues and claiming that two of the five issues were not raised by the defense in the court below.

The Court, if they accept this case, will have to determine what is the appropriate line between a  valid document retention policy and corrupt behavior that merits obstruction of justice charges, and the instructions of law that should accompany charges of obstruction of justice.

The statute involved in this case is 1512 (b), but the statute has been amended since this decision and section 1519 has been added to the obstruction statutes, allowing document destruction cases to be prosecuted without proof of corrupt persuasion.   Prosecutors in the Andersen case did not have the benefit of the new language in the existing statute and as such were forced to bring this action claiming that individuals "corruptly persuaded" others to destroy documents.  The government in its response to the Petition for Certiorari filed by Andersen argues that because of the addition of section 1519 to the obstruction statutes, the case is one "of little continuing practical importance." Whether this response by the government will be successful considering the high profile nature of the Andersen indictment and trial, remains to be seen.

This is not the first time the term "corruptly" as used in an obstruction statute is a key issue in a case.  In the case of United States v. Poindexter, the D.C. Cir. found the phrase "corruptly influences" to be unconstitutionally vague and reversed the conviction.  Congress responded to this decision by adding a definition section to section 1515, the definitions statute for the obstruction statutes, that defined "corruptly" for purposes of section 1505.  But the Andersen case proceeded under section 1512 and not section 1505.   The government in its response to Anderson's Petition for Certiorari states that "to the extent it is relevant at all, Poindexter and the ensuing events provide further evidence of Congress's intent that, in the context of the obstruction of justice statutes, corruptly should mean acting with an improper purpose."

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Addendum - Thanks to Mike for letting us know that there is a copy of the brief available at this site - http://www.usdoj.gov/osg/briefs/2004/0responses/2004-0368.resp.html

What's Happening With Arthur?

On September 14, 2004, a Petition for Certiorari (2004 WL 2070872) was filed by Arthur Andersen, LLP requesting the Supreme Court grant review of its case and conviction. The sole issue before the Court is:

"Whether Arthur Andersen LLP's conviction for witness tampering under 18 U.S.C. § 1512(b) must be reversed because the jury instructions upheld by the Fifth Circuit misinterpreted the elements of the offense, in conflict with decisions of this Court and the Courts of Appeals for the First, Third, and D.C. Circuits."

The Petition raises a fascinating question as the Indictment in Andersen charged the company with "knowingly, intentionally and corruptly persuade and attempt to persuade other persons." The Petitioners argue two deficiencies in the instructions:

1. First they contest the court’s instructing the jury on what the term "corruptly persuades" means. “Andersen repeatedly objected to the court's determination that ‘corrupt’ persuasion could be equated with an ‘improper purpose,’ and argued that the term requires proof of improper means of persuasion or inducement to unlawful acts, or at least conscious wrongdoing.”

2. Second they contest the court’s denial of an instruction that would have “ensure[d] that the jury would be required to find a close nexus between an employee's reminder to follow the document retention policy and any future SEC proceeding. . . . The district court instead instructed the jury that the Government did not have to prove that the "corrupt persuader" had any particular proceeding in mind or knew that a future subpoena was likely.”

This case raises serious questions of the line between valid document retention policies and corrupt behavior that merits obstruction of justice charges.

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