On Wednesday of next week, the U.S. Supreme Court will hear arguments over the meaning of the law under which now defunct accounting giant Arthur Andersen was prosecuted and convicted. Previous posts are here, here, here, here, and here about this case, which corporate legal departments and corporate lawyers are following closely.
The main reason that the Andersen appeal is being followed closely is that it began with an e-mail that any in-house counsel could have written — that is, a reminder to colleagues about the company’s document retention policy. “It will be helpful to make sure that we have complied with the policy,” wrote Nancy Temple, the in-house lawyer for Andersen in the October 2001 as Enron was spiraling toward bankruptcy. Andersen’s policy called for destroying documents when they were “no longer useful” for an audit. The timing of the email eventually led to the criminal prosecution and conviction of Andersen for destroying thousands of Enron-related documents. The prosecution and conviction doomed Andersen as a going concern and a once-proud company that employed almost 30,000 employees in the U.S. Andersen has withered into what is now essentially a self-liquidating litigation defense fund with fewer than 200 employees.
As a result of what happened to Andersen, numerous professional organizations such as the National Association of Criminal Defense Lawyers and the American Institute of Certified Public Accountants have filed amicus curie briefs that urge the Supreme Court to interpret the law under which Andersen was prosecuted narrowly so as not to criminalize routine legal and professional advice. In particular, the NACDL brief asserts that the Andersen lower court decisions place “lawyers at risk of investigation, prosecution, and imprisonment for doing their jobs,” and contends that those decisions improperly chill attorneys from lawfully advising their clients not to volunteer information to a grand jury or not to include unnecessary information in responding to the Securities and Exchange Commission.
For its part, the government claims in its brief that Andersen was well aware that an SEC investigation was likely at least a month before Ms. Temple sent her e-mail, noting that the accounting firm had assembled an Enron crisis-response team in September, 2001 as public revelations mounted regarding Enron’s questionable accounting.
Nevertheless, the government’s prosecution of Andersen was required to place a square peg in a round hole in that its indictment asserted only a form of witness tampering that occurs when one “corruptly persuades” others to destroy documents in order to make them unavailable for an official proceeding. What is often overlooked in the aftermath of the demise of both Enron and Andersen is that no Andersen official has ever been charged criminally or even cited by the SEC for violating securities laws in connection with Andersen’s work for Enron.
The narrow issue that is before the Supreme Court is whether U.S. District Judge Melinda Harmon properly instructed the jury in the Andersen trial on the meaning of “corruptly persuades.” The dispute is essentially over whether “corruptly” should be given a transitive or intransitive meaning. The Andersen side of the argument embraces the the transitive — i.e., in order to to prove the crime, the government would have to show that the persuading was done by corrupt or improper means. Under such an interpretation, Ms. Temple’s e-mail would not constitute a crime.
On the other hand, during the trial, Judge Harmon adopted the government’s jury instruction based on the intransitive meaning — i.e., that the government merely had to establish that Andersen had some improper intent of impeding an official proceeding regardless of whether Andersen believed its actions were lawful. Judge Harmon ruled that, so long as Andersen’s intentions were improper, the government did not have to prove that an official proceeding was under way or even likely in order to prove that Andersen had committed a crime.
Thus, the importance of the Andersen case to in-house counsel and corporate counsel is clear — if the Supreme Court upholds the 5th Circuit decision, virtually any corporate document retention policy that includes throwing things out would be at risk because making such documents unavailable is at least part of such a policy’s purpose. Somewhat surprisingly, the document warehousing industry has not filed an amicus brief with the Supreme Court in support of the government’s position. ;^)
However, in a larger sense, the Andersen appeal gives the Supreme Court an opportunity to knock down one of the government’s most visible symbols of its dubious policy of regulating business generally — and auditors in particular — through criminalization of heretofore normal business practices. One brave U.S. District Judge already this week firmly rejected the government’s over-zealous attempt to obtain what would have amounted to a life sentence for former Merrill Lynch head of international investment banking, Daniel Bayly, who was bit player in a relatively small Enron-related deal. Inasmuch as the government’s disembowelment of Andersen as a source of productive employment for approximately 30,000 U.S. citizens is equally indefensible, here’s hoping that the Supreme Court sends the government a clear message in the Anderson case that misapplying criminal law to regulate business will not be tolerated.