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Arthur Andersen’s document destruction last fall in the wake of financial troubles at major client Enron Corp. was directed by lawyers trying to protect the firm from civil suits and regulatory actions, a prosecutor in Andersen’s obstruction of justice trial argued Wednesday. “Indeed, ladies and gentlemen, Andersen’s legal department was the driving force behind this, and they were in the best position to know the law and the risks to Andersen. And they were on the phone almost every day to Andersen’s top managing partners,” Assistant U.S. Attorney Samuel Buell said in closing arguments. He said Andersen knew it could get hurt by the Securities and Exchange Commission. “They knew the SEC was coming,” Buell told a panel of 12 jurors and four alternates in U.S. District Judge Melinda Harmon’s courtroom in Houston. “It was the legal people. They were brought in early to get on top of this. You know why, ladies and gentlemen, you know why? You know that Warren Zevon song ‘Lawyers, Guns & Money’? They knew what would go wrong legally for the firm.” Buell said Andersen, with its “armies of lawyers,” is sophisticated enough to know the SEC investigates public companies that restate their earnings and those probes invariably lead to a request for documents from accountants. In closing statements, Buell painted Andersen in-house lawyer Nancy Temple and others in the legal department as the masterminds of an effort to destroy Enron-related documents at a time when Andersen partners knew, from past experience, that the SEC would likely seek documents from the firm. Buell, a special attorney with the Enron Task Force, said the in-house lawyers, top management at Andersen and members of the Enron audit team were all participants in the effort to destroy documents to keep them away from the prying eyes of the SEC and other outside parties. Andersen, formerly Enron’s accounting firm, was charged in March with obstruction of justice for the document destruction. While the verdict could be the death knell to Andersen, which already faces massive client defections after the downfall of Enron and class action securities litigation, the trial is also the first test for the Enron Task Force investigating the Enron debacle. In his turn at bat, Andersen defense attorney Russell “Rusty” Hardin Jr. told jurors there was no improper document destruction at Andersen, and “if the Arthur Andersen people really were in conspiracy to commit a crime, they’ve got to be the gang that couldn’t shoot straight.” He said the government rushed to judgment by indicting Andersen March 14, and said prosecutors had to scramble to identify the corrupt persuaders who they allege induced others at Andersen to destroy documents to keep them from the SEC. “Everyone ought to get nervous about how little it takes to be labeled a crook,” Hardin told the jury. “Be careful when you go home.” Hardin said there is “just something incredibly ironic” about the fact that Andersen is being prosecuted with documents it voluntarily produced to the SEC and other government agencies after announcing in January that a large number of documents were destroyed last fall. The charge alleges Andersen destroyed documents from Oct. 10 through Nov. 9, 2001, in its Houston, London and Portland, Ore., offices. To return a guilty verdict, jurors must find at least one “corrupt persuader” at Andersen who persuaded others, or attempted to persuade others at the firm, to destroy documents to keep them from the SEC. In his arguments, Buell walked jurors through evidence presented during the nearly five-week trial that he said proves Andersen destroyed documents at a time when it knew the SEC was investigating Enron. With state of mind at issue, Buell talked at length about two prior SEC investigations into Andersen’s accounting of former clients Waste Management Inc. and Sunbeam Corp., which defense lawyers unsuccessfully tried to keep out of the trial entirely, contending Rule 404(b) of the Federal Rules of Civil Procedure would prevent the mention of those “bad acts.” In June 2001, the firm entered into a consent decree with the SEC in the Waste Management matter in which it was fined $7 million and could face strict sanctions for future violations of SEC rules. “For Andersen, SEC consequences can be much more serious than civil lawsuits. They don’t just have to pay plaintiffs in a verdict, they could lose all their fees from all their clients,” he said. “The point is Andersen knew the drill, they knew the stakes … and they knew they could be hurt by the SEC,” he said. Buell methodically recounted evidence that suggests Andersen destroyed documents after it knew Enron had received an informal inquiry notice Oct. 17, and continued to destroy paper and electronic files up until Nov. 9, the day after it received a subpoena from the SEC for Enron-related documents. “Suggesting to you this was just some sort of routine cleanup of the files, or an attempt to get the files in order to impress the firm management … would be laughable if it wasn’t so serious,” Buell said. “Why did it happen, when it happened? … We suggest it’s obvious. There is no other explanation. … They were getting ready to defend themselves against the SEC and the investors who were coming to sue them,” he said. He talked at length about the role of Temple, the in-house lawyer who repeatedly warned top management and members of the Enron engagement team to follow the firm’s document retention and destruction policy. He said the reason Temple was involved in numerous high-level conference calls last fall to resolve Enron’s accounting issues was not related to her accounting expertise. “Why is she focusing on the documents?” Buell asked. It’s because she’s getting the firm ready, she’s protecting the firm.” Buell argued for two hours and 40 minutes Wednesday morning, and Hardin’s summation was continuing at press time. Assistant U.S. Attorney Andrew Weissmann, another special attorney on the Enron Task Force, was expected to deliver the prosecution’s rebuttal argument. CORRUPT PERSUADER Hardin, a partner in Rusty Hardin & Associates, began his argument with an apology to the jurors, saying he hopes that if they were offended by his forceful arguments and passion, they should not put any of the blame for that on Andersen. While much of it was outside the presence of the jury, Hardin and Harmon clashed repeatedly during the trial, particularly over the admission of evidence, and the blustery defense attorney often butted heads with prosecutors as well. “We begin this search, where it began, in the search for the corrupt persuader,” Hardin said, who early in the trial equated it with a search for Waldo, the character in children’s books. Hardin told jurors the government’s case initially focused on Duncan, the lead auditor on the Enron engagement who directed members of the audit team to follow the firm’s document retention and destruction policy. But he said it’s ironic that Duncan, who pleaded guilty to a charge of obstruction of justice and agreed to testify for the government, pleaded guilty to a charge that doesn’t prove the government’s case against Andersen. Hardin told jurors that because Duncan wasn’t the kind of corrupt persuader the government needs to prove the charge against Andersen, prosecutors began to focus their search for another corrupt persuader and latched on to in-house lawyer Temple. Hardin said Duncan told the truth during his five days on the stand, but the government “didn’t bargain on him telling the truth to the extent he did.” “They were so desperate to get this company that they were willing to settle for a cooperating witness I’ve never seen [before]. David Duncan pled guilty to a crime his testimony does not establish,” Hardin said. “Does David Duncan establish there was a crime? Absolutely, unequivocally no,” Hardin said. “Nowhere here does he say he instructed people on the engagement team to destroy, alter … . Nowhere does he say he did it with the intent to subvert, undermine or impede the fact-finding process of the SEC,” he said. “When they brought David Duncan to the dance, they didn’t like the answers of the person who brung them,” he said. Duncan testified in mid-May that after long soul searching, he decided he was guilty of obstruction of justice. But Hardin said in his closing that it came after numerous meetings with prosecutors and government agents, and suggested Duncan is a family man pressured to plead guilty. Hardin said that after Duncan didn’t pan out as well as the prosecutors hoped, they went after other alleged Andersen persuaders, including Mike Odom, the practice director in Houston, Thomas Bauer, another partner on the Enron account, and Temple. “Apparently we now have this demonic 38-year-old woman walking around in Chicago organizing this conspiracy by e-mail,” Hardin said referring to Temple. “I never heard of lawyers making the attorney-client privilege sound so evil. I never heard a lawyer being so critical of a lawyer being so involved in the client’s business,” he said. “It’s not evil, it’s not wrong, it’s done every swinging day.” Hardin said Temple was not a corrupt persuader, noting she was more of a document preserver than a destroyer because she told partners on the Enron audit to include some early drafts of memos in the work papers that should have been destroyed under the policy. MUDSLINGING? Hardin told jurors he’s “sick and tired” of hearing about Waste Management and Sunbeam. “They have nothing to do with this case. There’s not a single piece of evidence that these people were thinking about Waste Management and Sunbeam.” He asserted that because the government didn’t have evidence to prove its case, the prosecutors decided to throw some mud on the wall to see what would stick. Hardin said he would not be surprised if prosecutor Weissmann reminds jurors during rebuttal about Waste Management and Sunbeam. Hardin told jurors, “When he starts that again, when he mentions those things [say], ‘Watch out, Andy Weissmann, I’m on to you.’ When he starts trying to talk to you about anything but the evidence in this case, say to yourself, or out loud, ‘Watch out, Andy Weissmann, I’m on to you.’” He also cautioned jurors to be sure to understand the charge against Andersen. He said he agreed with Buell on one point: “It is what did you know and when did you know it. I agree with that. And in this particular case, it was perfectly proper to continue to follow the policy,” Hardin said. Hardin’s closing statements contrasted with Buell’s organized presentation. Hardin flailed arms, raised his voice, held up large cardboard exhibits, joked with jurors and even sat down in the witness chair when describing the testimony of a witness from a shredding company. Hardin added that defending Andersen in the trial has “cured him of wanting to be an accountant.” JURY INSTRUCTIONS The closing arguments followed jury instructions from Harmon, who presided over the trial that started May 6. Harmon told jurors they can use evidence of prior “bad acts” when deciding if Andersen is guilty of obstruction of justice. She allowed the jury to hear testimony about SEC enforcement actions taken against Andersen for its work for clients Waste Management and Sunbeam. In the Waste Management matter, Andersen entered into a consent decree in June 2001, without admitting to wrongdoing, that calls for the firm to face sanctions for future violations of SEC regulations. Harmon told jurors they could use the information about the prior SEC investigations in deciding if Andersen acted with the state of mind necessary to commit the crime, and if the company had knowledge of SEC procedures and motive or opportunity to commit the crime. She also instructed the jury in connection with the testimony of Duncan, the former lead auditor on the Enron engagement who testified for the prosecution. Harmon told the jury the fact Duncan pleaded guilty is not evidence that Andersen is guilty, but jurors may consider it in evaluating Duncan’s testimony. She cautioned the jury to scrutinize Duncan’s testimony carefully, considering he entered into a cooperation agreement with the government. “You should, for example, ask yourselves whether such a witness would benefit more by lying or by telling the truth,” Harmon said. Duncan faces up to 10 years in prison for pleading guilty to obstruction of justice, but by testifying, he may receive a lesser sentence. But Harmon also gave jurors instructions about three Andersen employees who took the Fifth Amendment and declined to testify, including Temple, who sent an e-mail on Oct. 12, 2001, that reminded Duncan’s supervisor about the firm’s document retention and destruction policy, and Andersen partner Thomas Bauer and manager Kate Agnew, both of whom worked on the Enron account. But the jurors won’t know the trio took the Fifth. At the defense’s request, Harmon agreed to tell jurors that while Temple, Bauer and Agnew were mentioned during the trial, they were unavailable to testify “for reasons which are not relevant here and with which you need not concern yourselves.” To find Andersen guilty of obstruction of justice, the government must prove beyond a reasonable doubt that Andersen corruptly persuaded or attempted to corruptly persuade another person and Andersen acted knowingly and with intent to cause another person or persons to withhold documents from an official proceedings and to alter, destroy, mutilate or conceal an object with the intent of keeping it from an official proceeding. In her instructions, Harmon told jurors the word “corruptly” means having an improper purpose, and an “improper purpose” in this case is an intent to subvert, undermine or impede the fact-finding ability of an official proceeding. “In order to establish this corrupt persuasion element, the government must prove that the agent of Andersen who engaged in the persuasion, not the other person persuaded, possessed the improper purpose,” she said Wednesday. She also noted that it is not necessary for the government to prove Andersen knew its conduct violated the criminal law. “Thus, even if Andersen honestly and sincerely believed that its conduct was lawful, you may find Andersen guilty if you conclude that Andersen acted corruptly and with the intent to make documents unavailable for an official proceeding,” the judge said. Harmon gave the jury two additional instructions following Buell’s arguments, after the defense complained about some of his statements to the jury. One instruction involved Buell’s statement that one document, which was a copy of a deleted e-mail that was later recovered, was nowhere else in evidence and is the kind of document the SEC would want to see. But Harmon instructed jurors that while the government acted in good faith in saying it was the only copy of the e-mail in evidence, it is true that Andersen had earlier produced another copy of the e-mail to the SEC. Harmon also reminded the jury that she only instructs them on the law, and not on the evidence. Defense lawyers complained when Buell said twice during his arguments that Harmon said Andersen had crossed the line. Said Harmon to the jury, “I don’t want you to be left with the impression that I instructed you to any factual matter.” Brenda Sapino Jeffreys is a senior reporter for Texas Lawyer , a division of American Lawyer Media and an affiliate of law.com.

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