Risk & Compliance

Supreme Court Reverses Andersen Verdict

The high court found that the trial judge's instructions were faulty because they didn't require proof that Andersen officials knew they were break...
Stephen TaubMay 31, 2005

In a 9-0 ruling, the U.S. Supreme Court has overturned the conviction of accounting firm Arthur Andersen LLP for its role in the Enron scandal, according to published reports.

The reversal of legal status for the firm — once a member of accounting’s Big Five — does little for the former partners and employees who lost their jobs, retirement accounts, and other benefits. Andersen’s conviction in 2002 all but put it out of business. It was unable to audit public companies, and today it has just 200 employees, mostly lawyers and administrators, according to Bloomberg.

Many business advocates hope, however, that the ruling will reign in what they believe is a movement to hold companies and their top executives legally accountable for what had been, until recently, routine business practices.

The court ruled that during Andersen’s 2002 trial in Houston, U.S. District Judge Melinda Harmon gave faulty instructions to the jury, according to Bloomberg. The firm was accused of illegally urging its employees to shred documents related to its Enron audits, the wire service explained, but Harmon’s instructions didn’t require proof that Andersen officials knew they were breaking the law.

The instructions “simply failed to convey the requisite consciousness of wrongdoing,” wrote Chief Justice William Rehnquist for the court. “Indeed, it is striking how little culpability the instructions required.” According to Bloomberg, Rehnquist pointed to a section in the instructions that said Andersen could be convicted even if the firm “honestly and sincerely believed that its conduct was lawful.” Rehnquist added that document-retention policies are “common in business,” the wire service noted, and that “it is, of course, not wrongful for a manager to instruct his employees to comply with a valid document-retention policy.”

“It’s a tremendous vindication” for the firm and its employees, said Rusty Hardin, who served as Andersen’s lead attorney during the trial, according to Bloomberg. “They never intended to do anything wrong. They certainly never intended to obstruct justice.”

In response, Acting U.S. Assistant Attorney General John C. Richter said, “We remain convinced that even the most powerful corporations have the responsibility of adhering to the rule of law.”

It is unclear what steps the prosecution might take next, though many legal experts have speculated that they don’t think the government will pursue a new trial.