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Regulation and Compliance > Federal Regulation > SEC

Death of An Auditor

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HOUSTON, Texas (–Arthur Andersen LLP, the well-known accounting and auditing firm brought down by its association with Enron Corp., acknowledged last week that the jury verdict in its federal criminal trial in Houston has effectively ended its audit practice.

“By August 31, [2002], the firm expects to cease practicing before the [Securities and Exchange] Commission and expects to begin immediately an orderly process of dealing with state regulators leading to surrender of the firm’s licenses,” it said in a statement Saturday.

An informal survey of hedge fund managers revealed some personal sadness about friends at Andersen, but little concern about any new effect upon the market for auditing from this development. The market has already absorbed the virtual disappearance of Andersen as a major player in the months since its indictment in March.

The firm and the SEC have agreed to a benchmark date of Aug. 31 because Andersen will make post-trial motions, in an effort to persuade Judge Melinda Harmon to set aside this verdict. The last day of August is an estimate of the time that both Andersen and the government will take to brief these motions.

If judgment is entered in accord with the verdict, as everyone now expects, the conviction would be grounds for automatic suspension of Andersen’s ability to practice before the SEC.

Hung Jury and the Allen Charge

Those post-trial motions will no doubt include arguments over the proper judicial response to a jury’s report that it is deadlocked–an old subject for lawyerly dispute.

In this case, the jury began its deliberations June 6. On June 12, the foreman informed Judge Harmon that jurors were divided and saw no likelihood of resolution. The judge then informed the lawyers on both sides that she intended to give the jurors what is known as an “Allen charge,” or more colloquially a “dynamite charge.” An Allen charge, which takes its name from an 1896 decision of the U.S. Supreme Court, typically instructs a jury to try harder, and urges each juror to reconsider his or her opinions, weighing carefully the arguments that jurors on the other side of the split have made.

In the early evening of June 12, the lawyers and the judge worked out wording for this Allen charge, and the defense counsel urged that it include the following language: “You must also remember, if evidence fails to prove guilt beyond a reasonable doubt, the defendant must have your unanimous verdict of not guilty.” Judge Harmon did not include that statement.

The next day she made another controversial decision. She answered a note from the jury that asked whether the jury could bring in a guilty verdict if they all agreed that somebody at Andersen corruptly intended to impede an investigation, despite their inability to agree on whom that somebody was. The judge answered this question “yes,” substantially lowering the bar for conviction. In the end, that decision came to seem irrelevant. In the special verdict form they brought in, the jurors indicated that they had agreed, after all, on at least one person within Andersen who had the requisite criminal intent.

In March, following Andersen’s indictment, the SEC issued orders and rules designed to reduce the disruptions in the capital markets and in the business of affected issuers. It announced June 15 that these orders and rules remain in effect.


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