The Supreme Court on Tuesday overturned the conviction of the Arthur Andersen accounting firm for destroying Enron Corp.-related documents before the energy giant's collapse.
In a unanimous opinion, justices said the former Big Five accounting firm's June 2002 obstruction-of-justice conviction -- which virtually destroyed Chicago-based Andersen -- was improper. The decision said jury instructions at trial were too vague and broad for jurors to determine correctly whether Andersen obstructed justice.
It was not just Arthur Andersen partners who lost wealth because of this miscarriage of justice. When Andersen collapsed, Freddie Mac had to switch accounting firms. The new accounting firm decided to challenge Freddie's use of hedge accounting for its derivative contracts. This in turn created panic on Freddie Mac's board, which launched a guilty-unless-proven-innocent investigation of top management, resulting in the CEO and essentially all other top executives being fired. Lots of shareholder value was destroyed--it is not clear that the new management even understands mortgage cash flows well enough to run the company.
As you might guess, I lost money on Freddie Mac stock because of this. Although I was no longer an employee of the company, I still held some stock.
But I guess I can't sue the judge who gave the vague instructions to the Andersen jury, can I?
Of course, the prosecutors in the case still think that Andersen was guilty, and that the Supreme Court ruling was on a technicality. Maybe they're right. But I think that many events have vindicated those who warned that the worst consequences of Enron would come not from that company's collapse, but from the political reaction to it.