Andersen verdict may not help Enron probe

The guilty verdict handed in by the jury in Houston on Saturday will sound the final death knell for Andersen, its punishment for the part it played in the spectacular rise and even more spectacular collapse of Enron.

But many observers believe Andersen’s conviction for obstructing justice may well mark the only success the US authorities will have in its pursuit of those people responsible for the Enron debacle.

Andersen, already a company of the brink of ruin before the trial, is now effectively out of business. The 89-year-old accounting stalwart, whose probity and reputation were legendary until it realised that the arid world of auditing could open the door to the more lucrative world of consulting, has tarnished itself and all of corporate America.

Its 2,300 blue chip client base had already shrunk about one-third prior to the trial, and following Saturday’s verdict Andersen will no longer be allowed to audit public companies.

With the Andersen case settled, the US Justice Department will now set about stepping up its investigations into Enron .

The Justice Department is known to be focusing its efforts on getting indictments against Enron officials, rather than the firm as a whole as it did in the case of Andersen. The three people in its sights are former chief executives Kenneth Lay and Jeffrey Skilling, and ex-chief financial officer Andrew Fastow.

But it is worth reminding ourselves, that despite a raft of investigations launched in the wake of Enron’s collapse, from Congressional probes in Washington DC - which include examining possible White House involvement - to a far-reaching inquiry by US financial regulator, the Securities and Exchange Commission, so far not one individual is under indictment in the Enron case.

According to Justice Department lawyers, the Andersen verdict will change all that.

"It sends a strong message that we are going to get to the bottom of the Enron debacle and those people responsible will be prosecuted," said Leslie Caldwell, head of the criminal division of the Justice Department’s San Francisco office and leader of its national Enron task force.

She added authorities were "still looking at all aspects of the case", adding: "We’re not finished with Arthur Andersen."

In Washington DC, deputy attorney general Larry Thompson said prosecutors will seek more indictments. He insisted that the guilty verdict "confirms that Andersen knew full well that these documents were relevant to the inquiries into Enron’s collapse and that Andersen partners and employees personally directed these efforts to destroy evidence".

But despite the bullishness of the Justice Department, doubts are being raised by a number of leading legal experts that this verdict will help in its primary quest to prosecute Enron.

Prosecutors had argued that Andersen had intimate knowledge of the complex off-the-book partnerships that Enron used to boost its image of financial health and mask debt before its collapse into bankruptcy last December. But the jury dismissed the central plank of the prosecution’s case: that Andersen shredded millions of documents to obstruct an investigation into Enron, its second biggest client. In short the jury believed Andersen’s excuse for the shredding - that it was part of normal company procedure to destroy what it called "extraneous files".

The jury actually found Andersen guilty of obstructing justice because the firm had altered an Enron-related memo on the instruction of Nancy Temple, one of Andersen’s in-house lawyers. She has already pleaded the Fifth Amendment and will not be testifying anywhere for now.

The lack of a conviction on the shredding casts a doubt over the government’s ability to get further convictions, and casts an even darker cloud over its high profile prosecution team flown in from New York to argue its case.

The prosecution even had a star witness, David Duncan, the former Andersen accountant who was at the head of the team that famously shredded tonnes of Enron-related documents.

Having presided over the shredding, Duncan had agreed to testify against his old employer in return for a light sentence. But in one of many bizarre moments during the trial, Duncan stood firmly behind the soundness of Enron’s accounting practices and insisted he didn’t do anything illegal in his work for Enron.

In this he even had the support of prosecution lawyer Samuel Buell, who insisted during the trial that Duncan had not revealed any criminal activity at Enron. Such comments may well come back to haunt government prosecutors as they seek to build a case against Enron executives.

You do not have to be Perry Mason to realise that unless Duncan starts singing from a fresh hymn sheet , the US Justice Department case against Enron, which centres on deliberating inflating its accounts to con investors, might not be as airtight as they believe.

In fact, Duncan’s candid admission leaves the Justice Department facing the tricky scenario whereby they have to prove that Enron pulled the wool over the eyes of Andersen and managed to conceal the true state of the company’s finances from its auditor.

None of this will of course save Andersen.

The company had several brushes with the authorities in recent years, including a US$7 million (4.74 million) fine for "improper conduct" by the SEC, the first ever successful case against an auditor by the regulator in 20 years. But like American folk hero Davy Crockett, time finally ran out for Andersen in Texas.