And Then There Were None – Looking Inside the Andersen Collapse

1. And Then There Were None – Looking Inside the Andersen Collapse September 2007 Nick Abrahams Partner and Sydney Office Chairman nick.abrahams@deacons.com.au 5158917

2. Today • The Andersen Story • Some Issues for Australia • Questions

3. 1. The Andersen Story

4. The Details Andersen • 90,000 people • “Like marines – the Few and the Proud” • Audit practices of all firms – leveraged • Problems with – Waste Management, Sunbeam, WorldCom, Qwest, Global Crossing Enron • Success story of late nineties • Seventh largest company in US • Great client of Andersen • “Raptors” (off balance sheet debt) • 2001 cracks appearing

5. Timeline • August 2001 • WSJ exposes Enron • Regulator start to ask questions • Andersen forms “crisis-response team” • Legal counsel knowing legal action “highly probable” urges team to follow “document retention policy” • Shredding begins – 2 tonnes of documents • 30 October 2001 • Authorities open formal investigation and request accounting records from Enron • Legal Counsel email suggests “remove me” from memo about Enron results • Shredding still continues • 8 November 2001 • SEC serves subpoenas • Shredding stops • December 2001 • Department of Justice indicts whole US partnership

6. Department of Justice’s prosecution • Andersen was obstructing justice • Very successful strategy: • Martha Stewart • Bernie Ebbers, WorldCom • John Rigas, Adelphia Communication • Frank Quattrone, Credit Suisse First Boston Andersen’s defence • Just observing a legal document retention policy

7. Court decisions • First instance • Andersen guilty of obstruction • Supreme Court • Judgement overturned due to Judge not instructing jury correctly • Must be conscious wrong doing • Not acquittal but retrial

8. 2. Some Issues for Australia

9. Some Issues • Document retention policies • Regulated retention • Response requirements • Be dispute ready • Use of obstruction of justice charges by regulators = not what happens to you but how you respond • Co-operation • Face indictment or “deferred prosecution agmt” • Time Warner, Computer Assoc., Merrill Lynch, Monsanto • Identify culprits, waive privilege (Quattrone) • Impact on role of in-house lawyer

10. 3. Questions

11. Given the impact of Andersen’s document retention policy on the firm at the time of the investigation, are document retention policies appropriate or should everything just be retained?

12. If in a situation like the Andersen one, would it be appropriate to engage an independent party to scrutinise/advise on the activities of the firm? Why? If so, at what time should the independent party be engaged? For example, as soon as regulator places the organisation on notice of an impending investigation or later?

13. How much assistance should an organisation provide to a regulator during the investigation process? For example: • should the organisation fight hard for its legal rights or should it be more co-operative; • to what extent should individuals under investigation be protected or assisted by the organisation (e.g. payment of legal fees etc.); and • should the organisation waive legal privilege over advice given to the individual by in-house counsel?

14. And Then There Were None – Looking Inside the Andersen Collapse September 2007 Nick Abrahams Partner and Sydney Office Chairman nick.abrahams@deacons.com.au 5158917