The Justice Department on Wednesday defended its successful prosecution of the Arthur Andersen accounting firm in the Enron Corp. scandal as a skeptical Supreme Court questioned whether unfairly worded jury instructions led to the conviction.
Andersen's massive document-shredding was the corporate equivalent of "wiping down the crime scene before the police get there," deputy solicitor general Michael Dreeben told the court.
Companies should preserve documents when there is a reasonable possibility of an impending inquiry, Dreeben said.
"You want criminal liability to attach to that?" Justice Antonin Scalia asked, a touch of incredulity in his voice. "You want somebody to go jail?"
The practice of discarding files is routine and the government's "sweeping finding" about preserving them will cause problems for every company and small business in the country, Justice Anthony Kennedy said.
A jury found the firm guilty of wrongly persuading employees handling the Enron Corp. account to engage in massive document destruction, just as federal regulators were turning their attention to the energy trading company's accounting problems in 2001.
The judge's jury instructions in the trial unfairly stacked the proceedings against Arthur Andersen, defense attorneys said in papers filed at the Supreme Court.
Andersen was charged under a witness tampering law, with an Andersen attorney in Chicago reminding the firm's employees in Houston who were handling the Enron account of a document retention policy that triggered the destruction.
"The critical question is whether Congress intended to make a polite request a case of witness tampering; Arthur Andersen did not commit a crime," Maureen Mahoney, arguing on behalf of Andersen, told the justices.
Linked forever to Enron as a symbol of corporate excess, Arthur Andersen was the fifth-largest U.S. accounting firm when its client crumbled, exposing illusory profits, off-the-books financial schemes and outright theft at one of the nation's largest publicly held corporations.
Most of Andersen's 28,000 workers moved to other accounting firms; its U.S. operations now have fewer than 200 Chicago-based employees, who largely handle lawsuits.
On Tuesday, Andersen paid $65 million to settle another case, that of telecommunications company WorldCom, where regulators said Andersen should have sniffed out $11 billion in accounting fraud, the largest in U.S. history.
The Supreme Court fight is an effort that, if successful, will help shield the former partners at Andersen from any possible future litigation, according to Paul R. Brown, professor of accounting at New York University's Stern School of Business.
Arthur Andersen was done in by the Justice Department, which built a case showing that as the Feds closed in, Andersen headquarters in Chicago reminded its office in Houston overseeing the books at Enron to carry out the firm's document retention policies.
To much of the corporate world, the reminder was standard operating procedure. To federal prosecutors, it was a felony. In practical terms, tons of records were shredded over several weeks — records that federal regulators would have wanted to see.
The verdict in the case may well have rested on an e-mail from an Arthur Andersen attorney telling employees about document retention, a policy "in place at almost every American corporation or professional firm of any size," Andersen's lawyers say in court filings.
Andersen argues the judge gave the jury standards for conviction that were too easy to meet and which should legally have been much more stringent.
"Although it was perfectly lawful for Andersen to have a document retention policy that preserved only the final audit work papers, and perfectly lawful for Andersen's employees and professionals to follow that policy, it was somehow a serious felony for Andersen's in-house attorney and supervisors to remind its employees of the policy," Andersen's lawyers have told the Supreme Court.
