Andersen guilty in Enron trial

A Texas jury yesterday found Arthur Andersen guilty of obstruction of justice over its destruction of documents in the Enron bankruptcy scandal – a verdict that almost certainly sounds the death knell for the once prestigious international accountancy firm.

After 10 days of deliberations so agonising that at one point the judge had to tell them to work a little harder, the nine-man, three-woman jury concluded that Andersen was institutionally culpable for the shredding of thousands of Enron documents last autumn.

At the time, Enron was falling apart and the New York Securities and Exchange Commission had opened an investigation into its accounting practices. Andersen was the Houston-based energy trading company's auditor, and had much to explain about the web of offshore subsidiaries and other unorthodox manoeuvres that kept hundreds of millions of dollars in debt off the official books.

The issue which tied the jury in knots was whether the shredding was the result of individual actions or the enactment of Andersen company policy. They finally solved the conundrum after the judge offered a helpful ruling on the extent to which they had to agree who within the accounting firm had done what.

What now seems beyond doubt is the devastation the verdict will cause to what is left of Andersen's international network of corporate offices. Unless the company can pull off a minor miracle and get the verdict reversed on appeal, it is likely to be barred from auditing publicly traded companies in future, as well as facing a hefty fine and the virtual certainty of an avalanche of further suits. Most of the overseas operations, including the British arm, have either been sold to the other big accountancy firms or are in talks with them.

The company has already lost hundreds of clients, including some of the biggest blue-chip names in the corporate world, and announced layoffs of 7,000 staff members – about a quarter of the total. As many as 10,000 employees have left of their own accord, and more job losses can be expected.

At the start of the Andersen trial in May, the case seemed to be a gift for the prosecution: it was no secret that Andersen had shredded the documents, and the partner in its Houston office responsible for the Enron account, David Duncan, had admitted his own guilt and agreed to turn state's evidence. But Mr Duncan's performance as a witness was somewhat equivocal. He admitted he had broken the law, but said it took him months to reach that conclusion. At the time of the shredding, he claimed, he did not believe he was doing anything wrong.

In the end, the trial hinged on the interpretation of a little-used company "document retention" policy that was invoked at the time the shredding began last October. According to the prosecution, this policy invocation was a signal for employees to start shredding. An email sent by one of Mr Duncan's assistants read: "AARRGGH. Send more shredding bags. Just kidding, we ordered some."

The Houston company's suspect business practices and collapse remain a major potential liability to the Bush White House because of a network of financial and corporate interests linking Enron to several senior members, including the president himself.