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U.S. defends case against accounting firm officials before high court

WASHINGTON—The Supreme Court appeared skeptical Wednesday of government attempts to jail former Arthur Andersen officials for their roles in shredding Enron-related documents in advance of the investigations that would ultimately lay waste to both firms.

The justices, appearing to be in rare unanimity during oral arguments, said the law at the time of the document shredding probably wouldn't have prohibited it. So it stretched credulity to prosecute executives at the firm for witness tampering and obstruction of justice because they ordered subordinates to do the shredding as part of normal company policy.

"You're saying it's illegal to ask someone to do something that it's lawful to do yourself," Justice Antonin Scalia told Deputy Solicitor General Michael Dreeben. "That's just weird."

Dreeben maintained that because Andersen officials knew in 2001 that Enron's collapse was likely to spark an Securities and Exchange Commission investigation, the document shredding was an attempt to impede or undermine the investigation. While it wouldn't have been illegal for those officials to shred those documents, Dreeben said, involving someone else crossed the line.

"It's corrupt persuasion when they direct someone else to destroy documents when there's a reasonable possibility that an investigation will take place," Dreeben said. He compared Andersen's behavior to "wiping the fingerprints" from a crime scene before police put up yellow tape.

Justice Anthony Kennedy described the government's position as "sweeping" and said it would cause trouble for every corporation in the country.

Maureen Mahoney, a lawyer for Arthur Andersen, said her clients' actions would have been illegal only if they had persuaded subordinates to violate the law through bribery or fraud.

"Congress didn't prohibit persuasion to destroy documents to avoid an investigation," she said. "They prohibited corruptly persuading someone to do that."

The case could have implications for companies throughout the business world, where document shredding is common practice and often part of official policies, as it was at Arthur Andersen. Enron and Andersen, once a company of 28,000 employees, were destroyed by the scandal.

But the U.S. Chamber of Commerce told the court in a brief that if the Andersen officials are jailed, "companies and employees will be consumed by inefficient caution. If an official investigation even approaches the horizon, it will become impossible as a practical matter for a company to advise its employees to comply with its efficient and legal document retention policy for fear of running afoul of the law."

Legally, what's at stake is the meaning of the word "corruptly" and what it covers in the laws that governed financial and accounting behavior in 2001, at the height of the Enron scandal. The government says it should encompass the Andersen officials' behavior; lawyers for the officials say it wasn't that specific.

The justices' ruling would settle that question and could shed light on the meaning of Congress' attempts, in the Sarbanes-Oxley legislation, to make it harder to destroy financial documents.

But beyond the legal questions, the case has resonance in popular notions of corporate right and wrong that have been irreversibly shaped by the Enron scandal. That's part of what prosecutors used to secure a conviction of Nancy Temple, one of Andersen's in-house lawyers, and a guilty plea from accountant David Duncan.

While investigators were unraveling Enron's many sins, prosecutors told jurors in Temple's case, the company's accounting firm and its lawyers were destroying documents that might have made the investigations easier and could have pointed to wrongdoing that wouldn't have been discovered elsewhere. They documented memos instructing employees to "follow the company policy" and get rid of notes.

"This case is all about a group of partners at Andersen who knew that the law was coming and did what they could ... to hinder the law," prosecutors told the jury.

The convictions were upheld by the 5th Circuit Court of Appeals, then appealed to the high court.

Mahoney, the lawyer for the Andersen officials, said not enough of the law was on the government's side to sustain the convictions.

Fear of an impending investigation "is not enough. Possible is not enough," she told the justices.

Dreeben said the reasonable possibility of an investigation should have stopped Andersen officials from shredding anything.

But Scalia remained unconvinced.

"You want to attach criminal liability to a reasonable possibility?" he asked. "You want someone to go to jail for that?"

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(c) 2005, Knight Ridder/Tribune Information Services.

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