Anderson ruling won't deter fraud prosecution

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First decision seen as corporate death penalty
Andersen has fewer than 200 workers, whose principal employment is helping the firm defend against civil lawsuits, which makes the Supreme Court decision something of an empty victory. Even so, spokesman Patrick Dorton issued a statement yesterday saying the court recognized "the fundamental injustice" of imposing what amounted to a corporate death penalty on the accounting firm. The indictment drew criticism from business groups, which argued that it would irreparably damage Andersen and reduce competition in the audit industry, by reducing the field from five big players to four.

Rusty Hardin, the Houston lawyer who served as Andersen's lead lawyer in the 2002 trial, said, "The next time these things come up, let's tread a little bit more lightly before we look for scalps."

The government already may have taken some of that criticism to heart. Since Andersen's demise, prosecutors increasingly have employed deferred prosecution agreements with companies accused of wrongdoing. Under the terms of those deals, companies will face increased financial penalties and other sanctions if they violate the terms of their corporate probation. That avoids the business-destroying approach prosecutors took with Andersen.

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"Andersen was not without fault for what it did," said Arthur W. Bowman, an industry analyst and author of the Bowman's Accounting Report newsletter. "But Andersen became the scapegoat for a lot of things. Not only were accountants doing shoddy work and getting too close to clients, but so were investment bankers and lawyers."

New requirements for auditors, execs
The Sarbanes-Oxley Act imposed new requirements on auditors, corporate board members and top executives, in an effort to get them to take more responsibility for financial statements. It also created an oversight board putting discipline for accounting firms in the hands of an independent body for the first time in 70 years. In recent months, the U.S. Chamber of Commerce and other groups have argued that auditors are overreacting and performing too much work in an effort to insulate themselves from regulatory action.

Meanwhile, yesterday's government defeat provides ammunition to defense lawyers who continue to fight the Justice Department's Enron Task Force. Michael Ramsey, a lawyer for former Enron chief executive Kenneth L. Lay, who is to face trial in January, said the decision is a "vindication" of his arguments that prosecutors have overreached and damaged their credibility. Daniel M. Petrocelli, lead defense counsel for former Enron executive Jeffrey K. Skilling, who awaits trial alongside Lay, said, "The Supreme Court's message is loud and clear: You cannot criminalize innocent conduct."

Andrew Weissmann, director of the Enron task force, declined to comment yesterday. But the Justice Department's Richter said in his statement that prosecutors moved swiftly against Andersen because they believed the firm was shredding documents to impede securities regulators.

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