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Arthur Andersen, the accounting firm that became the first target of the federal government’s investigation into the downfall of Enron Corp., was sentenced on Wednesday to a $500,000 fine and five years of probation. In June, a 12-member jury found Andersen guilty of obstruction of justice. Prosecutors alleged Andersen engaged in a massive destruction of Enron-related documents in the fall of 2001 that was aimed at keeping information from the Securities and Exchange Commission, which already had begun an investigation into Enron’s financial reporting. The sentencing ironically came exactly a year from the day when Enron announced its third-quarter 2001 earnings report and a massive restatement. The sentence imposed by U.S. District Judge Melinda Harmon of the Southern District of Texas is the maximum. But its effect is somewhat anticlimatic, since the once-powerful accounting firm ended its auditing work in August and is operating with fewer than 1,000 employees. Leslie Caldwell, an Assistant U.S. Attorney from San Francisco who heads the Enron Task Force, says the sentence is appropriate, and it should send a message to corporate executives to think twice before obstructing a government investigation. “The solution is not to destroy documents. The solution is not to lie about it,” Caldwell told reporters after the sentencing. But lead defense attorney Rusty Hardin of Houston says Andersen’s conviction and sentencing is a tragedy, because Andersen used to employ 28,000 people in the United States and 85,000 worldwide. He says Andersen maintains no one at the firm ever intended to obstruct justice. “It’s just a horribly sad day,” Hardin, of Rusty Hardin & Associates, told reporters while standing in the blazing sun outside the federal courthouse in Houston. “I am totally convinced, when all this bloodlust is over, this did not make sense,” he said. Hardin pointed out that more people lost jobs at Andersen than at Enron, where thousands were laid off in late 2001 when the energy company in Houston sought protection from creditors in bankruptcy court in December. With clients leaving the firm in the wake of Enron’s problems, Andersen pushed for a speedy trial after it was indicted in March. Shortly before the trial, the former lead auditor on the Enron account, David Duncan, pleaded guilty and agreed to testify for the government at the trial. He continues to cooperate with prosecutors, and his sentencing, once set for later this month, has been rescheduled for January 2003. After 10 days of deliberations, the jury returned a verdict on June 15, finding Andersen guilty of obstruction of justice. Several jurors interviewed afterward said they agreed upon Andersen in-house lawyer Nancy Temple as the single Andersen individual who acted with the corrupt intent to obstruct justice by keeping information away from the SEC. The jury foreman, the last holdout for acquittal, said it was Temple’s e-mail advice to Duncan suggesting he revise a note to the files about Enron’s third-quarter earnings statement that convinced him Temple was the “corrupt persuader.” Harmon’s sentencing of Andersen three months after the verdict came during a hearing that lasted less than an hour. Linda Thomsen, a deputy director for the division of enforcement at the SEC, read a lengthy statement to Harmon, asking the judge to impose a sentence that would send a strong message that obstruction of an SEC investigation leads to significant penalties. She said that while many of the documents destroyed by Andersen last fall were recovered, some were not. “Thus, we will never be able to advise the court of the full impact that Arthur Andersen’s conduct has had on the Securities and Exchange Commission and its investigation of the Enron matter,” Thomsen told Harmon. Federal prosecutors who tried the six-week trial in Harmon’s court also asked the judge to think of deterrence when sentencing Andersen. Samuel Buell, an Assistant U.S. Attorney, told Harmon the sentence “should say no firm — no matter how large or powerful — is excused from its basic duties to not violate the law.” Andrew Weissmann, another federal prosecutor on the Enron Task Force, said Andersen has exhibited a “complete failure” to accept responsibility for its actions. He alleged the accounting firm has engaged in “spin and damage” control from the time it was indicted in March and that represents a disservice to the public. After the sentencing, Hardin said he was taken aback by the prosecutors’ comments. He said Andersen and its employees had a right to say they don’t believe they did wrong. “It was a contentious trial, because we did not believe there was criminal intent,” Hardin said. “We’re not standing in the dark, thumbing our nose at the court, the government or the world at large,” he said. “We’ve limited our objections to a very simple one — that our company should not have been destroyed.” A former Andersen partner from Houston who watched the sentencing expressed his dismay and anger at what the prosecution did to the firm where he worked for 26 years. “I find this incredible that the government does this to a bunch of innocent people,” former partner Bob Palmquist said. “Good work, guys,” Palmquist yelled to prosecutors as they walked from Harmon’s courtroom to elevators in the courthouse. Another spectator was juror Wanda McKay, who also expressed dismay with the sentence. “The jury found one person guilty of changing a draft memo,” McKay said after hearing Harmon imposed the maximum sentence on Andersen. “I think it’s stinky.” Hardin says Andersen will appeal to the 5th U.S. Circuit Court of Appeals. He declines to detail the grounds for appeal. “We haven’t whittled it down,” Hardin says, adding that the judge was restrained during the sentencing and he’s respecting that. “I don’t want to be in the paper telling the judge what [we think] she did wrong,” he says. But likely areas of appeal include the jury charge and some of Harmon’s evidentiary rulings, including her decision to allow testimony about Andersen’s past dealings with the SEC under Federal Rule of Evidence 404(b), which sets out some exceptions to the rule prohibiting testimony of previous “bad acts.” Andersen is on probation because of a consent decree in 2001 stemming from its work for Waste Management Inc., with penalties including the loss of the right to certify audited financial statements.

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