High court overturns major conviction in Enron case

The reversal on technical grounds marks setback for the US Justice Department.

It's probably too late to matter, but Arthur Andersen's name is now cleared.

The big Chicago-based accounting firm, tarred by the Enron scandal and virtually a shell of itself since it lost an accounting license, is no longer a black sheep. On Tuesday, the US Supreme Court ruled the trial judge's instructions when it came to the heart of the case - obstruction of justice - were too vague. It overturned the conviction.

But even before the Court's decision, the case resulted in a lot of change in corporate America. "That conviction resulted in a new era of corporate conduct and compliance," says Kirby Behre, a partner at Paul Hastings, a Washington law firm. "It emboldened prosecutors to pursue more cases."

At the same time that the government was becoming more aggressive at pursuing white-collar crime, it was also pulling back from actually indicting a legitimate company. After federal prosecutors won their Houston case against Andersen, some 28,000 workers had to find new jobs because the company virtually went out of business.

"Since Arthur Andersen, the government has threatened many times, but to my knowledge, this decision has made them more cautious about putting legitimate companies out of business and throwing people out in the street," says Stephen Huggard, senior counsel at Palmer & Dodge in Boston. "It comes up with pharmaceutical cases where companies agree to settlements to avoid indictments since no indicted company would be eligible to participate in Medicare and Medicaid."

The Andersen conviction - even though it has now been reversed - also had a major impact on the way companies did business. Companies all over the country revised their document-retention policies, holding onto every e-mail and tape recording that was relevant to their business. "They are all much more careful than they used to be," says Dan Hedges of Porter & Hedges, a Houston-based law firm. "For example, trader tapes used to be routinely recorded over. Now they are saving all of those."

Despite the Supreme Court decision, lawyers who defend clients in white-collar criminal cases don't expect companies to revert to their old ways. Companies still have to comply with the Sarbanes-Oxley Act, which requires CEOs to vouch for corporate earnings. "I don't think business can return to the pre-Enron days," says Mr. Huggard, a former federal prosecutor.

Still, the reversal may help relieve some executives of concerns about what happens when they communicate with their in-house attorneys. "I can tell you, after the Andersen conviction, I talked to the legal departments of energy firms in Houston and they were all scared to death," says Mr. Hedges, a former federal prosecutor. "I hope this will calm people down."

It's not clear if the government intends to retry the case. Andersen is virtually a shell of itself. Hedges, who followed the case, says the court's reversal is "emblematic of how confused and difficult the case was."

That certainly seemed to be the Supreme Court's conclusion as well. Chief Justice William Rehnquist wrote: "The jury instructions were flawed in important respects." The court's decision was unanimous.

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