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For Arthur Andersen, the Supreme Court’s May 31 decision to reverse the firm’s criminal conviction was a long-awaited reprieve years after the executioner had thrown the switch. To the tens of thousands of Andersen partners and employees who lost their jobs when the accounting giant collapsed, it was a pyrrhic victory at best. And for the government, it was more of a symbolic body blow than a practical setback. In short, the right decision but too late to matter. The 2002 Andersen prosecution had been the first real test of the Department of Justice’s Enron Task Force � at a time when the drumbeat for retribution had reached a fever pitch. As Enron’s auditor, Andersen could unravel the tangled web of accounting schemes for federal prosecutors. Instead of cooperation, however, prosecutors ended up with a formidable adversary who very nearly handed them a stunning defeat. It was that rarest of criminal trials, a face-off in which the stakes were almost as high for the government as they were for the defense. Last week, the Supreme Court said prosecutors went too far in pressing the judge for a jury instruction that essentially criminalized innocent conduct. In so doing, it ignited anew the debate as to whether the DOJ should have indicted the venerable accounting firm in the first place. Nonetheless, the decision has no direct impact on the war on corporate fraud and corruption. Since Andersen’s downfall, prosecutors have racked up an impressive array of guilty pleas by and criminal convictions of former corporate executives. The Sarbanes-Oxley reforms, moreover, plugged the awkward holes in the patchwork of obstruction statutes to clarify the obligation to retain documents even in the absence of an imminent government proceeding, so it is unlikely that future prosecutions will rely on the statute that the Court interpreted here. But while reversals in high-profile criminal cases are not unheard of, it is unusual for the Supreme Court to hear a case on what, by all accounts, is a very narrow issue � unless the justices are trying to rectify a perceived injustice. DID THE JURY FIND GUILT? The question before the Court was whether Andersen’s destruction of Enron documents during a Securities and Exchange Commission investigation amounted to obstruction of justice. Did the case rest on a vaguely worded statute that punished Andersen for simply following its usual document retention routine, as the defense maintained? Or did the firm destroy records to keep them out of the hands of investigators who would soon be knocking on the firm’s door, as the government charged? The reversal itself focused on a single issue, the instructions to the jury on the necessary guilty state of mind. In their 9-0 decision, the justices seemed to have little difficulty in agreeing that the instructions “simply failed to convey the requisite consciousness of wrongdoing.” The Court concluded that the instructions could have led the jury to convict Andersen even if there was no proof that Andersen knew its conduct was wrong. The District Court had based its instruction on the U.S. Court of Appeals for the 5th Circuit’s pattern jury instruction, which defined “corruptly” as “knowingly and dishonestly, with the specific intent to subvert or undermine the integrity” of a proceeding. Prosecutors pressed the trial court to exclude “dishonestly,” which conveys malice, and add the value-neutral “impede” to the phrase “subvert or undermine.” The jury could then convict Andersen based only on a finding that Andersen intended to “subvert, undermine or impede” a government inquiry when it enforced its document retention policy. The Supreme Court rebuked prosecutors: “[I]t is striking how little culpability the instructions required.” Another flaw in the instructions, according to the Court, was the lack of any requirement that the jury find a nexus between the document destruction and a particular official proceeding in which the documents would have to be produced. GET ENRON, GET ANDERSEN Beyond the jury instructions, there is a deeper public policy issue: The indictment of an entire company is normally reserved for cases where the company is so rife with criminality that it is difficult to separate out its legitimate business activity or where the company itself exists merely as an instrument in a scheme to defraud. Absent those circumstances, prosecutors generally look to root out the culpable executives, thereby sparing innocent employees and shareholders from the fallout of a criminal conviction. Andersen had a history of bending the rules during prior SEC investigations involving its clients, and the DOJ was presumably looking to make an example of the firm as part of a new zero-tolerance policy on corporate fraud. But in truth, the Andersen case was a bit of a misfire from the start. At the time, Enron and its corporate officers were Public Enemy No. 1. The stunning collapse of the once high-flying energy giant left millions of angry investors. No federal prosecution in memory was as widely anticipated. No case placed more pressure on the DOJ to prosecute. Yet months after Enron’s collapse, no indictments of the highest-ranking executives were forthcoming. While the DOJ was being castigated in the media and on Capitol Hill, its slow response was not for lack of effort. Prosecutors faced two daunting problems: First, the scope and complexity of Enron’s financial transactions made this one of the most difficult corporate prosecutions in U.S. history; and second, to the extent the questionable transactions had been reviewed and approved by Andersen, the as-yet-uncharged Enron defendants had a ready-made defense of reliance on professional advice. No matter how dubious the accounting practices, if the Enron executives could credibly argue that they received the approval of Andersen, then one of the world’s largest and most respected accounting firms, it would be hard for the government to prove criminal intent. And that is what placed Andersen front and center as the government built its case against Enron. For the prosecution, the road to Enron went through Arthur Andersen. A WIN AND MANY LOSSES Pressuring the Andersen accountants to cooperate seemed a reasonable approach to getting prosecutors help in understanding Enron’s Byzantine transactions and to sidestepping its reliance-on-professional-advice defense. Undoubtedly, that was, in part, why prosecutors pushed forward. But what they hadn’t gambled on was the inability of Andersen management to come together to save the firm. Despite an offer to defer prosecution in exchange for its cooperation, Andersen was unable to agree on terms that would have allowed it to survive. Rather than hastening the march toward an Enron indictment, the Andersen case became an unexpected impediment. While the public was clamoring for Enron, federal prosecutors found themselves entangled in a sideshow. Ultimately, they won. But what had seemed a clear-cut case of obstruction of justice took jurors 10 days to decide, and that after once having declared themselves deadlocked. Jurors later stated that their verdict was based not on Andersen’s shredding of Enron-related records after all, but on a single e-mail message written by one in-house counsel advising a partner to edit an internal memo about Enron’s financial disclosures. As for Andersen, the decision not to cooperate came at an enormous price. What was once a firm with 28,000 employees in the United States is today reduced to a staff of about 200, many of them lawyers dealing with the impact of the conviction and other Enron-related issues. All of this leaves the government with a formidable problem: what to do now? It would be difficult to justify the devotion of time and resources necessary to retry the smoldering carcass of Andersen. But a decision to forgo a new trial will undoubtedly be portrayed by some as a tacit admission that the evidence is simply not there to convict. The Supreme Court’s reversal of the conviction may not have been a signal to reconsider the decision to prosecute. But the DOJ should still take the opportunity to rethink the Andersen indictment. The Enron indictments are now in hand. The lost jobs, the careers ruined, and the thousands of innocent companies left to scramble for new auditors already constitute a huge price. Perhaps that is enough. Robert A. Mintz is a partner at Newark, N.J.’s McCarter & English, where he heads the securities litigation, government investigations, and white collar criminal defense practice group.

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