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Supreme Court Overturns Arthur Andersen Conviction
The ruling was swift and unanimous. On May 31, 2005, the Supreme Court reversed the conviction of the late accounting firm, Arthur Andersen LLP (Andersen), under the federal witness tampering statute, 18 U.S.C. ' 1512(b)(2), in a key case arising from one of the most significant corporate scandals in American history. Arthur Andersen LLP v. United States, 544 U.S. — (2005) (full text of the opinion can be downloaded at www.supremecourtus. gov/opinions/04pdf/04-368.pdf). The result was unsurprising given the antagonistic questions the Justices posed to the government at oral argument. The Court overturned Andersen's conviction on the narrow grounds that the jury instructions failed to convey properly the elements of a crime under ' 1512(b)(2), and remanded for a possible new trial. The decision clarified the limits of ' 1512(b)(2) while leaving at least one important question unresolved. Perhaps more importantly, it may force a more narrow reading of the Sarbanes-Oxley Act with respect to document retention.
The facts of Andersen have been exhaustively played out in the media over the last few years. Beginning in 2000, Enron Corporation's financial performance deteriorated. As a result, in August 2000, the SEC opened an informal investigation of the company concerning its accounting procedures. As the scandal deepened over the next few months, Enron advised its outside auditor, Andersen, that it was under SEC investigation, whereupon Andersen's Enron audit team began massive document shredding. The shredding ceased only after Andersen received a subpoena from the SEC.
Section 1512(b)(2) prohibits “knowingly … corruptly persuad[ing] another person … with intent to … cause” that person to “withhold” documents from, or “alter” documents for use in, an “official proceeding.” A Houston jury convicted Andersen in 2002 on the theory that it violated ' 1512(b)(2) by persuading its employees to destroy documents pursuant to its document retention policy while the SEC was conducting an informal inquiry into Enron, even though Andersen had not yet been served with a subpoena. The conviction led to the collapse of Andersen's business, shrinking the firm from over 80,000 employees to a wind-up staff of about 200. The Fifth Circuit affirmed the conviction, and the Supreme Court granted certiorari to resolve a split among the circuits concerning the meaning of “corruptly persuades” and “official proceeding” in ' 1512(b)(2).
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