Arthur Andersen LLP was convicted Saturday of obstructing justice by destroying Enron Corp audit records in what probably will be the death knell for the world's fifth-largest accounting firm.
A federal court jury in Houston, in its 10th day of deliberations, concluded Andersen officials shredded Enron documents to keep them away from investigators probing whether fraud played a role in Enron's collapse and bankruptcy filing.
Andersen faces a possible US$500,000 fine and loss of certification to audit public companies at its sentencing on Oct. 11.
"This conviction is the poison pill for Andersen," said David Irwin, a white-collar criminal defense attorney and former federal prosecutor in Baltimore. Andersen partner Don Currin called the trial "the largest act of corporate murder ever."
Andersen has lost more than 700 clients, including 76 companies in the Standard & Poor's 500 Index, and thousands of partners in the wake of Enron's bankruptcy, the largest ever.
The six-week trial began with experts predicting an easy win for the government after Andersen partner David Duncan pleaded guilty to obstruction and agreed to testify for the prosecution.
The jury spared the Justice Department the embarrassment of a setback that might have hurt its pursuit of alleged fraud at Enron.
"The government wins big here," Irwin added. "They've got momentum for the Enron investigation now. They've gotten the first Enron-related conviction. They are on a roll."
Enron sought Chapter 11 protection in December after restating US$586 million in earnings because of accounting problems with partnerships used to keep debt off the company's books.
Andersen partners signed off on the partnerships.
Andersen called the verdict "wrong" and said it will appeal. In a statement, the company said its appeal will argue that US District Judge Melinda Harmon erred in rulings on evidence and instructions to the jury.
Under the government's theory "any company could be prosecuted for following standard document disposal practices before receiving a subpoena or even an informal request for documents from a third party," the company's statement said.
"This company did not commit a crime," said Andersen defense lawyer Rusty Hardin, who repeatedly argued with the judge during the trial.
Prosecutors said Andersen's felony conviction sends the accounting industry a message.
"When you expect the police, don't destroy evidence," said lead prosecutor Andrew Weissmann. Andersen knew the Securities and Exchange Commission would want documents "and they destroyed evidence in advance of their getting there," he said.
Leslie Caldwell, who heads a US Justice Department task force investigating possible fraud in Houston-based Enron's collapse, said the conviction adds fuel to investigators' efforts.
"We are going to get to the bottom of the Enron debacle," Caldwell said. "We've been moving forward with the Enron investigation throughout this trial."
Caldwell also didn't rule out the possibility that prosecutors may bring other charges related to Andersen.
"We're still looking at everything. We're not finished with Arthur Andersen," she added.
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