The federal government had a hard time three years ago obtaining a conviction of Arthur Andersen for having shredded its Enron documents as the energy company, its major client, was imploding. A jury in Houston took 10 days and declared itself deadlocked before convicting the accounting firm of a single criminal count of witness tampering.
But the challenge the government faced then looked easy compared with the one confronting it in the Supreme Court on Wednesday morning as the justices heard Arthur Andersen’s appeal. The justices were so clearly sympathetic to Andersen, with Justice Antonin Scalia at one point describing the government’s theory of the case as “weird,” that the only question by the end of the argument appeared to be how quickly the court would produce an opinion overturning the firm’s conviction.
That would be of little practical benefit to Andersen; the conviction was a corporate death sentence for the firm. It once had 28,000 employees and now has a skeleton staff of 200 engaged in closing down the firm’s affairs.
The appeal is the first case generated by the recent corporate scandals to reach the Supreme Court. A reversal of Andersen’s conviction would not necessarily have much prospective importance for cases that arise in a similar context – namely, a company’s behavior when an official federal proceeding, in this case an investigation by the Securities and Exchange Commission, is on the horizon but not yet a reality.
That is because a subsequently enacted statute, the Sarbanes-Oxley Act, which was passed largely in response to the Enron collapse, makes it clear that companies must retain documents in such a situation.