Arthur Andersen admits to making a lot of mistakes, but it refused to plead guilty to obstruction of justice. And so, on Thursday it was indicted in what the firm said was "a gross abuse of government power."
It is customary to say that a judge and jury will decide guilt. But in this case, the punishment may well come before the verdict. The maximum legal penalty, said Deputy Attorney General Larry D. Thompson in announcing the indictment, is a US$500,000 fine. In reality, many in the accounting business believe, the death penalty seems virtually certain.
As Samuel Johnson once pointed out, the prospect of hanging concentrates the mind. Knowing it faces death if it dallies, Andersen may choose to demand an immediate trial and see if the Justice Department can prove that the firm -- as opposed to some of its partners -- is guilty.
Conceivably, acquittal could give it a chance to survive. But this is a firm that was unable to find a merger partner because of its incalculable financial liabilities stemming from the problems at Enron and that is seeing more clients desert every day. Even though the Securities and Exchange Commission says it will still accept Andersen's audits, few companies want to risk telling their shareholders that they are hiring Andersen again. Even before the indictment, Andersen's reputation was in tatters.
Andersen does have some supporters. "They should survive," said David S. Ruder, a law professor at Northwestern University and a former SEC chairman. "Even the allegations at their worst," he added, make it appear that 95 percent of the firm was not involved. "I don't see any need to dissolve Andersen and force it into bankruptcy," he said, adding that the firm could be a very good auditor after it makes the reforms proposed by Paul A. Volcker, the former chairman of the Federal Reserve Board. On Thursday, Andersen pledged to make those reforms.
One government official involved in the case expressed concern about the indictment's consequences for Andersen. "The sentence does not fit the crime," said the official. He added that he feared reform efforts would be set back if Andersen did not survive to adopt Volcker's ideas. The other major accounting firms, now being called "The Final Four," have shown scant enthusiasm for the Volcker proposals.
Andersen's death, if it does come, could be messy. Others in the Final Four may try to pick off Andersen affiliates in foreign countries. There could be a scramble by companies to sign up new auditors before competing firms decide they have all the clients they can handle.
In recent weeks, there was talk of a global settlement in which Andersen would cut a deal with the Justice Department and resolve SEC charges with commitments for reform. Such an agreement might have provided the basis for Andersen's survival, either alone or with a dignified merger into another firm. But negotiations broke down, and the indictment followed.
In the current political environment, said Arthur Levitt, a former SEC chairman, it was impossible for government agencies "to broker the kind of settlement that might have preserved the best elements of Andersen" and kept it in business.
"This is a sad moment," Levitt added. "I hope the opportunity for reform will not be lost."
There is no doubt that Andersen employees shredded huge quantities of Enron documents after the SEC began its investigation. Andersen argued that its senior management did not authorize the destruction and presented a report by independent law firms to support its claims. If prosecutors have evidence to the contrary, they did not disclose it.