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American Morning
Criminal Charges Brought Against Arthur Andersen First Indictment Coming Out of Enron Scandal
Aired March 15, 2002 - 07:36 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
PAULA ZAHN, CNN ANCHOR: Turning now to the criminal charges brought against Arthur Andersen. It is the first indictment coming out of the Enron scandal, and the first time criminal charges have ever been brought against a major accounting firm.
And "The Wall Street Journal" put it this way: "In the 212 year history of U.S. financial markets, no major financial services firm has survived a criminal indictment. Now, Arthur Andersen will either make history or be history."
The firm is vowing to fight, saying the indictment is like a death sentence. The story now from CNN's Tim O'Brien.
(BEGIN VIDEOTAPE)
TIM O'BRIEN, CNN FINANCIAL NEWS (voice-over): In announcing the long-awaited indictment, Deputy Attorney General Larry Thompson stressed it was Andersen's partners who had ordered much of the shredding, and that the dimension of the operation was massive.
LARRY THOMPSON, DEPUTY ATTORNEY GENERAL: The indictment alleges that at urgent and mandatory meetings, Andersen partners and others told employees to immediately destroy documents related to Enron. Dozens of large trunks were brought in to haul documents from Andersen's office in Enron's building to Andersen's firm office in Houston in order to destroy literally tons of documents.
O'BRIEN: Anderson has long admitted its employees had improperly shredded documents and had agreed to fire anyone involved, and to accept sanctions from the Securities and Exchange Commission. But lawyers for Andersen said indicting the firm itself amounted to "an unprecedented exercise of prosecutorial discretion and a gross abuse of government power."
RUSTY HARDIN, ANDERSEN ATTORNEY: To indict a company like this with the disastrous effect that it will have and 28,000 employees, over what is going to prove to be a disagreement over their judgment and not some systemic thing going on within the company. I think it's tragic, and it's wrong.
O'BRIEN: The charges carry maximum penalties of only around $500,000 and five years probation, but the practical consequences could be far greater. JOSHUA RONEN, NYU ACCOUNTING PROFESSOR: I think Andersen is basically no longer on the map pretty much. I think Andersen will face bankruptcy. It's no longer viable, because this indictment will accelerate the defection of clients from Andersen.
O'BRIEN: A prospect that did not appear to trouble the deputy attorney general.
THOMPSON: And these are serious charges. And it shouldn't be a surprise to anyone that serious charges have serious consequences.
O'BRIEN: Man of the documents were destroyed shortly after the SEC had announced an inquiry into Enron's finances. The government says it will prove the company knew full well the material shredded was relevant to Enron's collapse.
(END VIDEOTAPE)
Andersen provides auditing services to almost 20 percent of the publicly traded companies in the U.S., about 2,300 clients. Last night, the SEC ruled that clients who wanted to abandon the firm could file unaudited financial statements, at least for now, with audited reports due within 60 days.
There is no question this is a heavy blow for Andersen, or as someone said, "a death penalty before trial" -- Paula.
ZAHN: So, Tim, is this overkill?
O'BRIEN: That's a really tough question. The government is, of course, correct when it says these charges are serious. The destruction of documents was massive. Partners of the firm were involved. They knew these documents related to Enron.
And also unspoken in the indictment, but a factor in this is that Andersen had been in trouble before with the government with another client, Waste Management, suspected of filing deceptive returns. Having said that, the indictment is unusual; it is severe. Prosecutors have a great deal of discretion as to what they charge a defendant with. Should they have used a little more discretion? That's emerging as one of the big issues in this case.
ZAHN: All right, thanks, Tim -- Tim O'Brien with the very latest on Arthur Andersen and its fight -- appreciate it.
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