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Andersen given $500,000 fine, 5-year probation

C Bryson Hull

A federal judge fined accounting firm Andersen $500,000 on Wednesday and sentenced it to five years probation for obstructing justice in a probe of client Enron, a hollow punishment since the auditor is all but defunct.

US District Judge Melinda Harmon on Wednesday handed down the maximum sentence to the company, which was considered a paragon of accounting integrity before its disintegration.

"I believe a message must be sent to the auditing community that the destruction of documents will not be tolerated while an investigation is ongoing," Harmon said.

The sentencing comes exactly a year after Enron Corp released a dismal third-quarter earnings report that sparked its rapid spiral into bankruptcy and harsh scrutiny of US corporate accounting practices.

Andersen was indicted in March after it admitted shredding Enron audit records while a US Securities and Exchange Commission probe into Enron was underway.

To the end, Andersen maintained that its employees never had any criminal intent to frustrate federal investigators.

"We will go to our grave saying we are not guilty," lead Andersen trial lawyer Rusty Hardin said, adding that the firm would appeal the case next week.

"I am totally confident that two years from now, when all the bloodletting is over, people will say that ... ruining this firm made no sense," Hardin told reporters.

Prosecutors argued that Andersen's misdeeds involving Enron showed a pattern that began with earlier accounting scandals involving trash hauler Waste Management Inc. and appliance maker Sunbeam Corp.

"This offense is one that was committed in the midst of a stream of failures by Arthur Andersen to live up to its duty as a public auditor," prosecutor Samuel Buell told the court.

Harmon noted the fact that the Enron offense came just a few months after Andersen paid a $7 million fine to settle accounting fraud allegations involving Houston-based trash hauler Waste Management.

Prosecutors alleged that Andersen's motive to shred Enron records was to avoid violating the settlement with the SEC, which could have revoked its accounting license.

A federal jury heard five weeks of testimony and deliberated for nine days before rendering its verdict on June 15. Andersen now employs less than 1,000 people, down from 85,000 worldwide before its rapid demise earlier this year.

Corporate conviction

Since it was a company that was convicted, rather than a person, the sentencing took on an unusual tenor. Andersen's physical embodiment came in the person of director C E Andrews, who said little except that to tell Harmon he had read the pre-sentence investigation of his firm.

The victim impact statement, when victims can address the court before sentence is pronounced, came from SEC deputy enforcement director Linda Chatman Thomsen. She urged a maximum punishment to deter others from interfering with her agency's ability to investigate.

And the judge said someone will have to meet with probation officials on behalf of the firm, which now keeps a minimal corporate structure primarily to settle more than 90 pending lawsuits.

Andersen was charged after admitting it shredded hundreds of Enron audit records while a US Securities and Exchange Commission probe into Enron was underway.

But jurors ultimately decided the 90-year-old Chicago firm was guilty because in-house lawyer Nancy Temple suggested removing her name from a memo recounting internal discussions of the flawed earnings report.

The conviction meant Andersen could no longer audit publicly traded companies, but it was by then a moot point since the indictment caused nearly all of the firm's publicly traded clients -- more than 700 -- to leave.

Andersen lawyers have said the appeal will focus on Harmon's jury instructions that appeared to break a lengthy deadlock. It would also focus on Harmon's admission of prosecution evidence about Andersen's prior problems with the SEC.

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