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Andersen Gets $500,000 Fine, Probation

Oct 16, 2002 | UPI

Arthur Andersen LLP was fined $500,000 and sentenced to five years probation Wednesday for obstruction of justice in the Enron Corp. investigation.

U.S. District Judge Melinda Harmon agreed with arguments from the Justice Department and Securities and Exchange Commission for the maximum punishment.

"Andersen's conduct in obstructing the Securities and Exchange Commission investigation of Enron, we submit, contributed to the historic shaking of the foundations of our markets," said assistant U.S. attorney Sam Buell.

Rusty Hardin, Andersen's lead attorney, said the Enron auditor was innocent of the charges and the conviction and sentence would be appealed.

Andersen, once one of the largest accounting firms in the nation with 28,000 employees, was convicted in June after a 10-week trial. The jury took 10 days to reach a verdict on obstruction of justice.

Prosecutors alleged that Andersen employees had shredded Enron documents when they learned the SEC was going to investigate the failing Houston energy trading company that filed for bankruptcy Dec. 2.

Only about 3,000 employees are left at Andersen, which lost its right to audit public companies at the end of August. Many of the company's employees have been laid off or joined other accounting firms.

Bruce McGovern, a law professor at the South Texas College of Law, told United Press International the conviction was more damaging to Andersen than the sentence.

"The conviction was what made it really difficult for the firm to continue to represent clients in terms of ability to represent them before the Securities and Exchange Commission," he said. "It was also the conviction that prompted certain state accounting boards to attempt to revoke Arthur Andersen's privileges to practice."

Andersen has some cash from the sale of its partnerships to other firms along with profits from his final year in practice. It also operates an Illinois training facility that could earn some additional cash. The company has refused to file for bankruptcy.

It was a year ago Wednesday that Enron reported third-quarter losses of more than $600 million and a $1.2 billion reduction in shareholder equity. The startling report was one of the first public signs of trouble at the huge Houston energy trader.

Andersen was the first target of the Enron Task Force prosecutors investigating the collapse of the company.

David Duncan, an Andersen partner who managed the Enron audits, testified in the trial after reaching a plea bargain with the government. His sentencing is scheduled for next week but it may be delayed.

Since the Anderson prosecution two key figures in the Enron investigation have been charged, former Enron Chief Financial Officer Andrew S. Fastow and his right-hand man, Michael Kopper.

Fastow is the highest-ranking former Enron executive to face charges so far in the collapse of Enron. A grand jury may soon formally indict Fastow, who is charged with fraud and money laundering.

On Aug. 21, Kopper pleaded guilty to money laundering and wire fraud in a plea bargain with the government. He admitted in court that he helped defraud Enron of millions of dollars through three off-the-balance sheet partnerships.

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