On This Day In Finance: June 15 - Collapse Of 'Big Five' Accounting Firm Arthur Anderson

By Joseph Nguyen | June 11, 2009 AAA

Seven years ago on this date, accountancy firm Arthur Anderson was found guilty of obstruction of justice by a jury in the United States. As auditors for Enron, it allowed the company to use questionable accounting practices and illegally destroyed documents to cover up its trail. One key piece of evidence that helped the conviction was the description of a training video in which an Arthur Anderson executive basically gave the thumbs up to shred documents.
In addition to destroying Arthur Anderson's reputation that was built over 89 years, the conviction by the 12-member jury would lead to more lawsuits being brought against Arthur Anderson that would eventually lead to its bankruptcy.

Legal Precedent
The case also set a significant legal precedent when U.S. District Court Judge Melinda Harmon decided that the jury could convict the company as a whole if it could not pinpoint the people who were responsible for the document shredding. Judge Harmon took more than a day to reach the decision and said she found it "terrifying for a district judge" to set a precedent of this magnitude.

Sarbanes-Oxley
As a result of the Enron scandal and accountancy fraud in this case, lawmakers tightened the regulatory standards by passing into law the Sarbanes-Oxley Act in 2002 (SOX). The Act introduced more measures for transparency, reporting and penalties, among other things.

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