HOUSTON - A federal jury convicted Arthur Andersen LLP yesterday of obstruction of justice for destroying thousands of documents related to Enron last fall when members of the accounting firm knew that the government was inquiring into Enron's finances.
It was the first criminal charge ever brought against a major accounting firm, and the first such charge stemming from the government's investigation of Enron's collapse in December. If the conviction is upheld on appeal, Andersen faces fines of up to $500,000, and the likelihood that it will be barred from auditing publicly traded companies.
Andersen informed the Securities and Exchange Commission after the verdict that it will cease auditing public companies by Aug. 31, unless the SEC determines that another date is appropriate, the commission said. An SEC rule bars any firm convicted of a felony from auditing publicly traded companies.
But Andersen is already a shell of its former self. The firm has lost 690 of its 2,311 public company clients since Jan. 1. It has shrunk from 27,000 employees in the United States to 10,000 at most, between layoffs and departures of whole offices and practices to competing firms.
The firm faces hundreds of millions of dollars in potential liability from lawsuits by Enron shareholders and creditors, as well. But the lawyers of the Enron shareholders and creditors have also embarked on a search for defendants - including banks and law firms - whose pockets would be deeper than those of a depleted Andersen.
The guilty verdict came in the morning after a criminal trial of almost six weeks that has frequently been slow and complex, punctuated by sometimes fiery closing arguments from the prosecution and the defense. The jury returned its decision at the start of its 10th day of deliberations.
Andersen was charged with obstructing an investigation by the Securities and Exchange Commission by destroying thousands of records last fall related to its audit of Enron.
The prosecution argued that Andersen made a deliberate effort to prevent outside parties, including the SEC, from learning the full story about Enron's accounting.
But the defense countered that the government had failed to provide any proof that anyone at Andersen had acted with corrupt intent to impede an inquiry.
The verdict followed a crucial ruling yesterday by U.S. District Judge Melinda F. Harmon that supported the prosecution. In response to a question from the jurors, she decided that they could find the firm guilty even if they could not agree on which of the firm's employees had the intent to commit the crime. The defense then asked her to declare a mistrial, arguing that the jury was being coerced into reaching a verdict. She refused.
Andersen had the support of just half of the jury at the start of deliberations and steadily lost that support over the next 10 days, four jurors said after the verdict was announced.
In an initial poll that the members of the jury conducted in the first days of their deliberations, jurors were divided evenly, according to the foreman, Oscar Criner. The number who thought Andersen should be acquitted only declined as jurors reviewed more evidence and heard more testimony reread to them, Criner said at a news conference held in the federal courthouse here.
"What happened was, there appeared some smoking guns," Criner said.
But the evidence that proved most persuasive to the jury was not the description of the boxes of documents that Andersen employees in the firm's Houston office sent to be shredded in October and early November, in the weeks before the Securities and Exchange Commission announced a formal investigation into Enron's accounting.
Instead, the jurors focused on how Andersen staff members revised an internal memorandum on Enron's earnings release.
"The thing came back to the Enron earnings release and the fact that Enron used the phrase `nonrecurring'" to describe certain transactions, Criner said.
The internal memorandum showed that Andersen did not approve of that wording. But after Enron dismissed the firm's advice, Criner said, "then Andersen went along to change things, to alter documents."
An Andersen in-house lawyer, Nancy Temple, suggested changes to the memorandum to hide the firm's concerns about Enron's accounting, Criner said. It did not matter that copies of the original version of the memo were kept by the firm, he added. "It was the intent."
The jury concluded that Temple was the "corrupt persuader" at Andersen who intended to hinder a government investigation of Enron's finances.
Prosecutors repeatedly implied to the jury that when Temple sent e-mail messages to accountants working on Enron-related matters telling them to make sure that they were in compliance with the firm's document-retention policy, she was actually suggesting that they shred documents.
The other people that the jury considered possible corrupt persuaders included the Andersen partners David B. Duncan, Michael Odom and Thomas H. Bauer.