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Justice Department officials defend Arthur Andersen prosecution to skeptical Supreme Court

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WASHINGTON -- The Supreme Court poked through the rubble of the Enron Corp. (PNK ENRNQ) financial scandal Wednesday, questioning whether the Arthur Andersen accounting firm that came crashing down with the energy giant got a fair criminal trial.

At issue are the jury instructions that led to the prosecution of what was once the fifth-largest accounting firm in the country. A lawyer representing Andersen argued that the instructions were stacked against the firm.

Chicago-based Andersen directed its employees in Houston to shred Enron records, the corporate equivalent of "wiping down the crime scene before the police get there," deputy solicitor general Michael Dreeben told the justices.

Dreeben said companies must preserve documents when there is a reasonable possibility that government regulators will want them.

Justices Antonin Scalia and Anthony Kennedy were skeptical about the feasibility of such file-keeping.

"You want criminal liability to attach to that?" Scalia asked, a touch of incredulity in his voice. "You want somebody to go to jail?"

The corporate practice of discarding files is an everyday occurrence and the government's "sweeping finding" about preserving them will cause problems for every company and small business, Kennedy said. He told Dreeben that the Justice Department's position "is like the Army: make two copies of everything you're going to throw out!"

Chief Justice William H. Rehnquist asked for a definition of documents as it related to the destruction of tons of records that went on at Andersen.

Notes and drafts of documents were thrown away under the firm's document retention policy, in part because they are preliminary and also because they can be misconstrued, said lawyer Maureen Mahoney, representing Andersen.

Mahoney pointed out that FBI agents throw away their interview notes and that defendants in criminal cases "would love to have" them. Typewritten reports generated from FBI agents' notes are retained.

To convict Andersen, the jury had to find that the firm corruptly impeded the fact-finding ability of an official proceeding. That threshold, Andersen contended, was set far too low.

"You are getting pretty thin as far as the knowledge of wrongdoing," Justice David Souter said, expressing doubt about whether the jury instructions were less than Andersen was entitled to.

The justices focused on several chaotic weeks in October 2001 when Enron and Andersen realized that federal regulators were zeroing in on the problems of Andersen's biggest client.

Was it all right for an Andersen executive to tell workers in a videotaped training session that month that as long as document destruction precedes the filing of litigation, "that's great," Justice Ruth Bader Ginsburg asked.

Yes, replied Andersen's lawyer, saying there were 89 Andersen employees present for the training session, and only 10 of them worked on Enron.

The jury in the Andersen case watched the training session video twice.

Scalia asked the government's lawyer whether the training session was simply to spell out the firm's document retention policy.

It was an odd time to begin destroying documents, Dreeben said. "Suddenly they become preoccupied with neatness?" he said.

Andersen was charged under a witness tampering law, with an Andersen lawyer in Chicago reminding the firm's employees in Houston who were handling the Enron account of a document retention policy that triggered the destruction.

"The critical question is whether Congress intended to make a polite request a case of witness tampering; Arthur Andersen did not commit a crime," Mahoney said.

After the firm's conviction, most of Andersen's 28,000 workers moved to other accounting firms, leaving fewer than 200 Chicago-based employees. They largely handle lawsuits.

The Supreme Court fight is an effort that, if successful, will help shield the former partners at Andersen from any possible future litigation, according to Paul R. Brown, professor of accounting at New York University's Stern School of Business.

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