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Accounting Firm Arthur Andersen Found Guilty of Obstructing Justice

Aired June 15, 2002 - 11:25   ET


FREDRICKA WHITFIELD, CNN ANCHOR: Good afternoon. I'm Fredricka Whitfield at CNN headquarters in Atlanta. A verdict is in in the Arthur Andersen obstruction of justice case. The verdict is guilty, and we go now to Fred Katayama who is in Houston with details on that -- Fred.

FRED KATAYAMA, CNN CORRESPONDENT: Well, Fredricka, a Texas jury has found Arthur Andersen guilty on one count of obstruction of justice. The Texas jury of nine men, three women deliberated for 11 days after hearing five weeks of testimony before returning its verdict.

Lead defense attorney, Rusty Hardin, said just before the announcement of the verdict, the government's decision to indict ruined innocent people at Arthur Andersen, immeasurably harmed the Enron investigation, is it really a decision that makes sense? Well, prosecutors charged that Arthur Andersen destroyed documents related to the Enron audit with the intention of impeding an investigation by regulators. The defense had argued that the documents were shredded not to impede the investigation, but rather to organize Enron paperwork.

It was originally envisioned as a slam-dunk, open and shut case for the government. Obviously it did not turn out that way. The jury declared that it was deadlocked eight days into the deliberations.

There were two key turning points. One was a crucial ruling by the judge yesterday. Basically, the judge ruled that the jurors did not have to agree that the same person committed a crime so long as each juror believed that someone did. This is a huge win for the prosecution.

Also, the prosecution early on was able to recruit as its star witness David Duncan. He is the former lead Enron auditor at Andersen. He agreed to plead guilty to obstruction of justice in exchange for a light sentence. Also, the jurors were shown videos of Andersen partner Michael Odom who was caught advising staffers on what he called "embarrassing documents."

Now, what made this case unusual from the beginning was, it was Arthur Andersen that brought the shredding case to the attention of the government. The government then turned around and instead of indicting an individual or a few individuals, it indicted the entire firm, the entire partnership.

Now, today that firm has been found guilty of obstruction of justice, not an innocent partnership, but rather seen as a corporate felon, and now its future is in jeopardy. If anything, there are a lot of victims here, especially Arthur Andersen's employees. There was once 26,000 employees working at that firm; today just a little more than 10,000.

Now, because Andersen has been convicted, it faces fine of up to $500,000, and it could be barred from auditing public companies. If the indictment was a death sentence for Arthur Andersen, this verdict of guilty could be the final blow. Back to you, Fredricka.

WHITFIELD: Now, Fred, when would that sentence be imposed or that fine?

KATAYAMA: Fredricka, we have not heard from the judge about the sentencing yet. As soon as I hear that, I'll relay it to you.

WHITFIELD: All right. Thanks very much, Fred Katayama from Houston.

Now we want to go to our CNN's "MONEYLINE's" Lou Dobbs. He is on the telephone with us now to give us a sense, Lou, of what this might mean for Arthur Andersen. Are they finished at this point, or at least what happens to the some 10,000 employees that are still working for Arthur Andersen?

LOU DOBBS, HOST, "LOU DOBBS MONEYLINE": Fredricka, Andersen was indeed, as Fred Katayama reported, delivered a death sentence when the indictment was handed down on the 14th of March. The fact is this is simply the end of a process of absurdity and, in my judgment, a gross abuse of government prosecutorial power, and I believe that the days and weeks ahead will demonstrate that as we've already learned in this trial.

The fact is that this verdict is the least surprising verdict I've ever seen in a case after the judge handed down the instructions yesterday. The fact is, it was a direction that the 12 men and women on this jury could see three different people in different ways and find the firm guilty.

What it also means is this firm would not have -- this jury would not have even convicted David Duncan, who pleaded guilty to obstruction of justice, because they had differing views of precisely who it was who might have committed a crime.

So it's a remarkable instruction, an unremarkable verdict given that instruction, but it has been illuminating to see this case unfold over the course of the past six weeks.

I think we're going to be hearing a great deal about it. The fact is that with a deadlock at eight days, the trial taking six weeks, a verdict coming on the 11th day, I think there's also some vindication here for the 26,000 innocent employees of Arthur Andersen, and I think the prosecution will have a lot of explaining to do in the days and weeks ahead.

WHITFIELD: At the same time, Lou, do you see that this might possibly embolden the government in its ensuing pursuits of any other charges or any other individuals they may be seeking out as it pertains to Arthur Andersen?

DOBBS: I don't think that -- this is a Justice Department that has been working now for seven months on this case, which really has nothing to do with Enron except the documents themselves. This case has been nothing but a distraction, a diversion, and has nothing to do with convicting or investigating and trying culpable people at Enron.

And in point of fact, here we are eight months after the investigation began, and the only person -- the only person charged has been the person handed up by Andersen themselves, which is David Duncan. The Justice Department has yet to indict or charge a single person in this investigation, whether at Enron, or Andersen, or anywhere else.

WHITFIELD: All right. CNN "MONEYLINE's" Lou Dobbs. Thank you very much for joining us on the phone.

We want to bring in our legal analyst, Jeffrey Toobin, in on this discussion.

Well, Jeffrey, Lou made a very good point. You know, this pursuit of Arthur Andersen precedes that legal pursuit of any Enron employees or Enron heads. Might this kind of set the pace or set the road ahead for what the government might be pursuing as it pertains to Enron and its indictments that may be ensuing?

JEFFREY TOOBIN, CNN LEGAL ANALYST: Well, that was certainly the theory behind this case. The theory was that you would prosecute Arthur Andersen, get a quick conviction, build momentum, and then go after the supposed wrong-doers at Enron.

This case turned out to be an extremely difficult trial for the government. The government did win, I think we need to point that out, but after a jury instruction yesterday that was highly controversial, perhaps highly questionable on appeal. And, as Lou pointed out, this case really did not have much to do with Enron itself and any wrong-doing there.

So the real ultimate purpose of the task force that the Justice Department set up, which was to investigate people like Ken Lay, Jeffrey Skilling, Andrew Fastow, the people who really ran Enron in the time that it collapsed, they really don't appear to be any closer than they were at the beginning, based on the evidence of this case. I think the idea that they will develop momentum probably was hurt by how hard this jury found this decision to be.

WHITFIELD: But at the same time, you know, there were three different people, and the jurors were allowed and instructed by the judge, Judge Melinda Harmon that, you know, it doesn't mean all three have to be found guilty, even if you just find one, you can render a guilty verdict. TOOBIN: And the judge said, you don't even have to agree on which one it is. Three jurors can think one person; nine jurors can think another person. One juror -- can think -- wait, I'm doing my math wrong. Eight jurors can think one, one juror can think a third person, and the company can still be guilty. That will certainly be challenged on appeal.

In many respects, it almost doesn't matter about whether this verdict stands up against Andersen, because, again, as Lou pointed out, Andersen is effectively done as a company. So there is not -- whether Andersen is guilty or not guilty here doesn't have that much practical significance, even if it is legally controversial.

But this case was very tough for the government, as it turned out. It was very far from the slam-dunk, and I think it underlines just the larger issue of companies are rarely charged in criminal trials. They sometimes plead guilty, but it is very different -- difficult for jurors to understand the idea of how you hold a large company liable for the actions of just a few people. And I think the difficulties of that concept are illustrated by how hard this jury found this case to be.

WHITFIELD: You don't see it practical that Arthur Andersen, their attorneys, would want to appeal?

TOOBIN: Well, I think they probably will appeal, but I don't think it will make that much of a difference. And we're only talking about a $500,000 fine in what was a multi-billion dollar company. But whether they win the appeal, whether they lose the appeal, it almost really doesn't matter, because Arthur Andersen as an entity is on its way to being broken up and dispersed into a much smaller or even nonexistent company.

WHITFIELD: Yes, they have already lost so much, to say the very least. Thanks very much, Jeffrey. Appreciate it.

We want to go back to Fred Katayama outside the Houston courtroom with more information from there. Hey there, Fred.

KATAYAMA: Hi, Fredricka. Well, the jury has just been polled, and all 12 of the Texas jurors voted guilty. However, none of them cited any individuals by name. Now, if anything, this really hurts Arthur Andersen as a business. It's practically gone. It will be gone as a result.

More than 300 firms have left or defected from Arthur Andersen, many of them right after Andersen was indicted. Already, thousands of employees have been fired, let go, or they've gone to other firms. Plus, Arthur Andersen has sold off many of its overseas subsidiaries, so it really can't serve as the huge multinational that it once served. This could be the ultimate death blow for a once proud 89- year-old firm, a firm that used to pride itself on its sense of ethics and accountability.

There are a lot of challenges yet ahead for Arthur Andersen. They're facing an SEC probe, they could face other lawsuits, and the states could revoke their auditing licenses. Plus, let's keep in mind, this is the very first major white collar prosecution and conviction following all the events surrounding the Enron scandal and bankruptcy. Back to you, Fredricka.

WHITFIELD: All right, thank you very much, Fred Katayama from Houston.

So once again, if you're just now joining us, a 12-member jury in Houston, Texas has found accounting firm Arthur Andersen guilty of obstruction of justice after 11 days of deliberations. Arthur Andersen now faces a fine of up to $500,000. We're waiting to hear from the attorneys on both sides of the case. Just shortly, they should be emerging from the courthouse there. When they do, we'll bring that to you live.


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