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Arthur Andersen Is Put On Probation

Oct 17, 2002 | AP

The rubble of once-proud Arthur Andersen LLP endured one last parting shot from the Justice Department.

The Chicago-based firm, accused earlier this year of destroying and doctoring records of its dealings with scandal-plagued Enron, was sentenced Wednesday to five years of probation and fined $500,000.

U.S. District Judge Melinda Harmon ordered the firm, which essentially no longer performs any of its trademark accounting work, to pay the fine immediately before civil lawsuits and other costs eat up its remaining assets. Andersen was a $4 billion entity a year ago.

C.E. Andrews, Andersen's global audit practice director, stood quietly to accept the firm's penalty.

Defense attorney Rusty Hardin reiterated that thousands of Andersen workers either knew nothing of shredding or shredded according to a longstanding policy with no criminal intent.

"What they have to justify is drumming an entire company out of business for the actions of a few," he said. He has said the company will appeal.

But Leslie Caldwell, head of the Justice Department's Enron Task Force, said the blame for Andersen's downfall rests squarely on its leaders. Fewer than 1,000 of 28,000 former workers remain.

"Andersen's management is responsible for Andersen's demise not the government," she said.

Andersen was accused of shredding Enron-related documents last year to thwart a Securities and Exchange Commission accounting probe. The firm already was withering by the time it was convicted in June, closing offices across the country.

The guilty verdict rendered Andersen unable to audit public companies under SEC rules, and the firm has stopped doing so. Prosecutor Sam Buell said probation will allow the court to monitor Andersen in case the firm tries to renew its public auditing business.

"We are pleased with the sentence handed down (Wednesday) in the Arthur Andersen case," Deputy U.S. Attorney General Larry D. Thompson said in Washington, D.C. "When a business organization breeds a culture of deceit and contempt for the law, the organization itself must be held accountable."

Former federal prosecutor Robert Mintz, now a partner with McCarter & English in Newark, N.J., said probation means Andersen is on notice that it faces more fines and extended probation if the firm violates Harmon's sentence.

The terms include no criminal activity and a requirement to obtain permission from a federal probation officer to sell assets.

Former partner Bob Palmquist, 50, called the case a "sideshow" that forced thousands of workers who never touched the Enron account to scramble for other jobs. "Good work, guys," he said to prosecutors outside the courtroom. "Take it to your grave.

"Who committed the crime? No one can tell us," said Palmquist, a 26-year Andersen veteran who remains unemployed. "There are a lot of displaced people. The Justice Department should be ashamed of themselves."

Andersen's criminal trial was the first to emerge from last year's collapse of the giant energy trader.

According to jurors, the knockout blow for the firm came May 14. That's when David Duncan, the former auditor in charge of the Enron account, testified that in-house attorney Nancy Temple told him to remove a sentence and her name from a memo detailing Andersen's opinion of Enron's Oct. 16 earnings release, which was rife with bad news. Jurors zeroed in on Temple as the culprit.

One of the jurors, Wanda McKay, attended Wednesday's sentencing and said she opposed prosecutors' repeated references to document destruction.

"They keep saying we found them guilty of document destruction and we didn't," she said. "The jury found one person guilty of doctoring a draft memo."

Andersen fired Duncan in January shortly after he publicly acknowledged that Enron documents had been shredded. He later pleaded guilty to obstruction of justice and is continuing to cooperate with the government. His sentencing is set for Jan. 3. No one else at Andersen has been charged.

Andersen's sentencing comes exactly a year after the firm battled with Enron executives over how to report the company's third-quarter earnings in an Oct. 16, 2001, news release. Enron shares tumbled after the company disclosed a $618 million loss and eliminated $1.2 billion of shareholder equity from its books.

Enron filed for bankruptcy six weeks later.

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