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Andersen Sentenced To $500,000 Fine, 5 Years of Probation

A Judge Hands Out The Maximum Penalty In The Enron-Related Obstruction Case. The Firm Says It's Not Guilty

Oct 17, 2002 | Los Angeles Times Arthur Andersen, the accounting firm once revered for its commitment to integrity, was sentenced to the maximum $500,000 fine and five years' probation Wednesday for obstructing a federal inquiry into the collapse of former client Enron Corp.

The Chicago-based accounting giant had previously surrendered its licenses to audit financial statements and retains fewer than 1,000 U.S. employees, down from 28,000 before the obstruction charge.

Prosecutors accused the firm of destroying Enron-related documents in an attempt to keep information from federal securities regulators. A Houston jury convicted the firm, but several jurors said later that they rendered the verdict because they believed an Andersen in-house attorney had asked a Houston-based partner to alter a memo, not shred it.

"We will go to our graves saying we were not guilty," Andersen's lawyer, Rusty Hardin, told the judge. Hardin said the firm intends to appeal.

U.S. District Judge Melinda Harmon said the "maximum fine is warranted to send the message to the auditing community that the destruction of documents will not be tolerated.... The full impact of Andersen's conduct will never be known because many of the documents could not be recovered."

Harmon ordered the firm to retain all documents from its audits of Enron and other clients. She also said Andersen could not dissolve itself without first obtaining her approval.

In asking Harmon to impose a heavy sentence, Assistant U.S. Atty. Samuel Buell cited the firm's questionable audits of other clients, including trash hauler Waste Management Inc. and American Tissue Inc., a New York paper products maker. American Tissue filed for bankruptcy protection last year.

Buell said outside court that the American Tissue matter remains under investigation, but he alleged that an Andersen partner had directed destruction of documents related to the firm's audit of the company.

Andersen spokesman Patrick Dorton expressed outrage that Buell cited the case. "No one has concluded that anyone did anything wrong," Dorton said. "It is morally and ethically irresponsible ... to spew out random allegations."

Andersen has all but disintegrated since prosecutors indicted the firm in March. The firm once had 111 U.S. offices but now has only three with "critical mass," Dorton said. Nonetheless, the firm has vowed to stave off bankruptcy.

Leslie Caldwell, chief of the federal task force overseeing the Enron probe, said Andersen employees shouldn't blame the Justice Department for decimating the firm. "They need to look at their management," Caldwell said. "The government did not destroy Arthur Andersen. Arthur Andersen's management destroyed Arthur Andersen."

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