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The issue of whether Arthur Andersen employees had fair notice of a pending investigation by the Securities and Exchange Commission into Enron Corp.’s financial reporting dominated oral arguments on Oct. 9 in Andersen’s appeal of its obstruction of justice conviction. An appeals attorney for Andersen told a panel of the 5th U.S. Circuit Court of Appeals that the trial judge’s instructions to the jury on the obstruction of justice statute were too broad. “The court’s definition of both corrupt persuasion and official proceeding really depart from what the . . . meaning of those terms may be,” Maureen Mahoney, a partner in Latham & Watkins in Washington, D.C., said during oral arguments held in Austin before Judges Patrick Higginbotham and Fortunato Benavides. The panel also includes Senior Judge Thomas Reavley, but Higginbotham announced that Reavley was with his “gravely ill” wife in Oregon and would listen to the tapes of the arguments. Andersen, based in Chicago, was convicted in June 2002 of obstruction of justice following a six-week trial in U.S. District Judge Melinda Harmon’s court in Houston. Prosecutors had alleged the firm engaged in a massive destruction of Enron-related documents at a time when it should have known the SEC was investigating Enron’s financial reporting. In October 2002, Harmon sentenced Andersen to the maximum of five years’ probation and a $500,000 fine. According to Andersen’s appeal brief, Andersen was charged with obstructing justice under 18 U.S.C. � 1512(b) by corruptly persuading another person to make information unavailable to official proceedings. Harmon instructed the jury that the word corruptly means having an improper purpose, and defined that to mean an intent to subvert, undermine or impede the fact-finding ability of an official proceeding, according to the brief. “These instructions deprived the word ‘corruptly’ of its intended meaning and permitted the jury to convict Andersen for engaging in conduct that is not wrongful,” Andersen’s lawyers wrote in the brief. The phrase corruptly persuades was added to � 1512(b) in 1988. Mahoney said Harmon’s jury instruction widened the line of demarcation between lawful and unlawful conduct as outlined in United States v. Aguilar, a 1995 U.S. Supreme Court case that found a defendant did not violate � 1503 of the law by allegedly lying to an FBI agent during a pending grand jury investigation because, according to the principles of fair warning, it was not done with intent to obstruct justice. Mahoney told the judges most of the document destruction and other allegedly obstructionist conduct at issue in the trial occurred days before Andersen learned that the SEC was opening an official investigation into Enron’s financial reporting. Mahoney said that under United States v. Shivley, a 1991 5th Circuit decision, an official proceeding, like an SEC investigation, must at least be scheduled to give any notice. “That’s the kind of rule that would give defendants fair warning,” Mahoney argued. She told the 5th Circuit panel that while Andersen received notice on Oct. 19, 2001, of an informal investigation into Enron’s financial reporting, it didn’t get notice of a formal investigation until Oct. 31 at the earliest. She said an informal investigation “would not be sufficient to put people on notice.” She also argued that a scenario calling for Andersen employees to ask coworkers to follow the firm’s document retention policy does not fit the proper definition of corruptly persuading them to do it. She said the Andersen employees had a lawful right to follow the policy. She alleged Harmon’s instruction “criminalizes a broad range of conduct that people feel they have a lawful means to do.” But Elizabeth Collery, a federal prosecutor from Washington, D.C., who argued the appeal on behalf of the U.S. Department of Justice’s Enron Task Force, argued that Harmon’s definition of corrupt came directly from � 15.03. “It has always been understood to be corrupt to destroy documents in anticipation of a subpoena,” Collery argued, before agreeing with Benavides’ characterization of her argument that acting corruptly is a state of mind. Collery also said that following the document destruction policy in and of itself wasn’t corrupt behavior. Instead, she said, the alleged corruption comes in when the individual anticipates some proceeding in the future. She says there’s a “wide gulf” between attempting to keep a document from a proceeding and intending to obstruct justice. Higginbotham questioned whether Andersen employees had an independent legal duty to preserve documents at a time when there was only a possibility of an investigation by the SEC. “It’s troubling to the court,” he said. ANDERSEN’S PAST Evidence Harmon admitted into the trial about prior SEC enforcement actions against Andersen and its partners under Federal Rule of Evidence 404(b) took up much of the rest of the time during the arguments. Mahoney alleged Harmon erred when allowing in the evidence the prior enforcement actions involving former Andersen clients Sunbeam Corp. and Waste Management Inc. At the time of the trial, Andersen was under probation under a consent decree in 2001 stemming from its work for Waste Management, with penalties including the loss of the right to certify audited financial statements. That argument seemed to carry some weight with Higginbotham who commented, “My problem with that has to do with the scope of the evidence that came in.” He also asked Collery to “defend” the large amount of detail the jury heard about the Waste Management and Sunbeam enforcement actions. Collery says the details were “highly relevant” because they involved similar allegations of financial reporting that allegedly violated Generally Accepted Accounting Principles and allegations of an unusually close relationship between Andersen and the client. She says the enforcement actions were important because in-house lawyer Nancy Temple allegedly knew about them. Several jurors interviewed after the verdict said they agreed upon Temple as the single Andersen individual who allegedly acted with the corrupt intent to obstruct justice by keeping information away from the SEC. Benavides, meanwhile, wondered out loud why the court should reverse the conviction on 404(b) grounds when Harmon gave an instruction to jurors that the bad-acts evidence was offered only for motive and intent. Higginbotham also asked Collery and Mahoney about the status of Andersen, suggesting that the court typically doesn’t order new trials in a case in which a convicted defendant is deceased or, in the case of a company, defunct. However, Mahoney said Andersen is not defunct, but “still an active entity” facing hundreds of civil suits with billions of dollars at stake. The company has about 250 employees, according to a spokesman. Mahoney says the appeal is important, adding, “It is vitally important for Arthur Andersen and the development of the law on what constitutes fair warning.” Following the arguments, Leslie Caldwell, head of the Enron Task Force, declined to comment; Mahoney said the judges’ questions indicate they were well-informed of the issues.

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