Rush to judgment: the lynching of Arthur Andersen & Co

Abstract Since the bankruptcy of Enron, many concluded—before sufficient facts were available to form a reasoned judgment—that Andersen was responsible for the debacle. As the facts have been uncovered, it is clear that the destruction of Andersen, the censure of the public accounting profession and the host of new regulations regarding CPAs are all based on a theory unsupported by facts. This study explores the publicly available evidence regarding Enron and Andersen, as well as the actions of politicians and financial institutions. The facts show that Enron officers committed fraud within off-balance sheet partnerships (SPEs) with the willing assistance of various prominent financial institutions. Neither the SPEs nor the financial institutions were audit clients of Andersen. Further, the SEC granted Enron a special exemption to investor protection laws, thus allowing Enron to set up the SPEs and setting the stage for the fraud. The Department of Justice rushed to indict Andersen for obstruction of justice. The evidence shows that Andersen personnel destroyed duplicate copies of old memos, old magazines and requests for charitable contributions and these were destroyed before the SEC had issued any subpoena to Andersen or even discussed the possibility of such a subpoena with Andersen. In contrast, the Department of Justice gave misleading testimony, engaged in leaks, allegedly threatened witnesses and admitted in Court that it had failed to review the most crucial evidence, Andersen’s audit workpapers.