The government's hardball tactics in prosecuting white-collar crime may face a new wave of scrutiny after the Supreme Court on Tuesday threw out former accounting giant Arthur Andersen's obstruction-of-justice conviction.
The decision could have an immediate effect on another high-profile case -- that of former Silicon Valley financier Frank Quattrone, who is appealing his obstruction-of-justice and witness-tampering convictions on grounds similar to what Andersen argued: that he did not intend to break the law.
Quattrone's legal team said in court papers filed in New York on Tuesday that the Supreme Court ruling had an "important bearing" on his appeal.
But in the broader context of the government's crackdown on alleged business wrongdoing since Enron Corp. imploded in a financial scandal in 2001, the Justice Department still has an array of powerful weapons to use in pursuing cases, legal experts said.
The sweeping Sarbanes-Oxley corporate reform law, passed by Congress in 2002, set explicit new rules for business conduct and ordered harsh penalties for transgressors.
What's more, the law requires accounting firms to be much more vigilant in spotting and reporting potential financial fraud. "The accounting profession has learned a lot in the last few years, and those lessons aren't going to be reversed," said Barry Melancon, chief executive of the American Institute of Certified Public Accountants.
The first important case brought under Sarbanes-Oxley, involving fraud charges against HealthSouth Corp. founder Richard Scrushy, was seen as unaffected by Tuesday's court decision.
Among the charges Scrushy faces is false certification of financial statements at the healthcare chain as part of a scheme to artificially inflate profit by $2.7 billion. The Sarbanes-Oxley law forces top executives to swear that corporate financial data are accurate.
A Birmingham, Ala., federal jury today begins its ninth day of deliberations in the Scrushy case, after a nearly four-month trial.
What may be changed by the Supreme Court ruling, experts said, is the care with which prosecutors demonstrate that a white-collar defendant meant to break the law, and how judges instruct juries in finding guilt or innocence.
Andersen, Enron's accounting firm, was accused of shredding tons of Enron-related documents in the fall of 2001, as early hints of a massive accounting fraud caused the Houston-based energy-trading firm to skid toward bankruptcy. The shredding flurry was triggered by an e-mail from an in-house lawyer at Andersen reminding employees of the firm's "document retention policy."
