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Jury based guilty verdict on Andersen e-mail


June 15, 2002

Houston—In the end, it wasn’t the massive shredding of Enron-related documents or ex-Andersen partner David B. Duncan’s guilty plea that convinced a Houston jury to convict Andersen of obstruction of justice on Saturday. It was a single e-mail written by Andersen in-house lawyer Nancy Temple to Mr. Duncan, suggesting he alter an internal memo.

The Oct. 18 e-mail urged Mr. Duncan to change his record of Andersen’s conference calls regarding Enron’s troubles, removing any reference to concerns that he and other Andersen executives had about Enron’s Oct. 16 earnings press release, which described the Houston-based energy trading firm’s $1.01-billion charge against earnings as non-recurring. Mr. Duncan considered the terminology misleading to investors, since future charges were possible, if not probable. He warned the company not to use it, saying the Securities and Exchange Commission (SEC) takes a dim view of misrepresentations.

But after the release went out with the problematic wording intact, Ms.Temple suggested Mr. Duncan delete references to Andersen’s concern about misrepresentation, as well as the mention of his warning to Enron. Mr. Duncan complied with her requests and testified about the exchange early in the six-week long trial.

A day after having Mr. Duncan’s testimony read back to them, the nine-man, three-woman jury announced they found Andersen guilty of one count of obstruction of justice. They agreed unanimously that Ms. Temple had attempted to interfere with an SEC investigation. “David Duncan was the one who was corruptly persuaded,” said Oscar Criner, the jury foreman.

While the guilty verdict was expected, especially after U.S. District Judge Melinda Harmon lowered the bar for conviction by telling jurors Friday they need not agree on which employee committed the crime, the jurors’ analysis was not. The group spent very little time considering David Duncan as the guilty agent, said juror David Schwab, an executive pastry chef from Spring, Texas, even though Mr.Duncan testified that he knew his Oct. 23 directive to staff to follow the firm’s document retention policy would keep damaging documents from the SEC. “There was enough doubt in David Duncan because of the plea that he made,” he said.

Nor did the jury consider the shredding of Enron-related documents that took place at a feverish pace in the fall of 2001 significant. “They were just going back trying to clean up the mess,” said Mr. Criner, a professor of computer science at Texas Southern University in Houston. “All of this business about telling people to shred documents was superficial and largely circumstantial. . . . One of the things that was clear about that is Arthur Andersen hadn’t trained its people very well.”

The videotape of Andersen partner Michael Odom, in which he tells employees that getting rid of documents just before a subpoena arrives is "great”, was also ruled out by the jury as evidence of the firm’s intent to obstruct justice. “He’s just doing his job, trying to get everybody to (follow) the document-retention policy-–to clean up the work papers and get everything in order,” Mr. Criner said.

The fact that the jury found Andersen guilty for altering a memo and not for shredding documents flabbergasted defense lawyers. “It is utterly shocking,” said Charles A. Rothfeld, a Washington, D.C.,-based lawyer on Andersen’s team. “I can guarantee you the Justice Department did not indict Arthur Andersen because Nancy Temple edited an internal memo,” he said.

But prosecutors stood by the conviction as well as jurors’ emphasis on the e-mail. In changing the memo, “They covered themselves. They covered their client and they papered over the record,” said Asst. U.S. Attorney Andrew Weissmann.

Prosecutors would not say if they will bring charges against Ms. Temple, who invoked her Fifth Amendment right against self-incrimination and did not testify at the trial, for her role in the case. Nor would they say if they would bring perjury charges against any Andersen witnesses they think were less than honest in their testimony. Mr. Weissmann would only say, “Our investigation of Andersen is not over.”

Russell “Rusty” Hardin Jr., the celebrated Houston lawyer who put on a spirited defense of the firm, appeared shaken even before the verdict was read. Outside the courtroom Saturday morning, he told reporters he took some solace in the fact that it took jurors 10 days to reach a verdict. “It is some level of acknowledgement that that’s how weak the government’s case was,” he said. Once in the courtroom, he shook hands with each of the junior lawyers who worked on the case. When jurors arrived he avoided looking at them, sitting slumped in his chair.

An Andersen press release, issued minutes after the verdict, was more lively. “Today’s verdict is wrong,” the statement read. “Arthur Andersen is planning to appeal the conviction based on flawed jury instructions and erroneous evidentiary rulings that precluded Andersen from presenting its entire defense.” The statement continued that the verdict “represents only a technical conviction,” a characterization that infuriated prosecutors.

“I don’t think that shows any acceptance of responsibility or contrition and if that is the message that they are taking from this, it is a continued closing of their eyes to their obligations to the public,” Mr. Weissmann said. He also fired back at Andersen for its repeated insistence that the government is responsible for the firm’s demise.

Andersen, through its lawyers, turned down an offer of deferred prosecution on Feb. 9, asking to be cleared or indicted by the end of March instead. After they lost that bet, Mr. Weissmann said the firm turned down a second offer for a deferred prosecution. “They refused alternatives that would have been less drastic and would have provided some means of providing continued employment to their own employees. They were willing to sacrifice them,” Mr. Weissmann said.

Andersen said the verdict will effectively end its audit practice. Anticipating that sentencing could take place as early as Aug. 31, 2002, the firm will begin transitioning its remaining clients to other accounting firms. “By August 31, the firm expects to cease practicing before the (SEC) and expects to begin immediately an orderly process for dealing with state regulators leading to surrender of the firm’s licenses,” Andersen said via press release.

Andersen faces a fine of up to $500,000 and five years probation, during which time it would be prohibited from auditing publicly traded companies.

By Sarah Klein. Source: ChicagoBusiness.com


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