Andersen's humiliating month in court

Arthur Andersen's survival may already be a lost cause, whatever the outcome of its humiliating month in court. But the verdict will not only settle the reputation of the venerable accounting firm for posterity, but give a clear pointer as to whether criminal charges are feasible in the far wider scandal of Enron.

Close followers of proceedings in Houston, once confident of a straightforward case, are now loath to predict which way the nine-man, three-woman jury will decide Andersen's obstruction of justice charges, the first criminal prosecution arising from the Enron debacle.

When proceedings opened on 6 May, Justice Department prosecutors appeared to have, in basketball parlance, a slam-dunk conviction: that Andersen had destroyed vast quantities of electronic and documentary Enron audit material was, most emphatically, not in question.

And the US government had done a deal with David Duncan, the lead Andersen partner on the Enron account, which meant he would plead guilty to obstruction of justice and testify against his former employer.

Given that proof that just one senior Andersen officer had committed the offence was enough to nail the firm, a guilty verdict seemed to be in the bag.

But David Duncan as star witness was a dire disappointment, at least for the prosecution. On the stand, he admitted he had broken the law, but said he came to that conclusion only months afterwards. He maintained that, when he ordered the shredding between 23 October and 8 November last year, he did not believe he was doing anything wrong.

Having elicited that admission, Rusty Hardin, the folksy Texan who led for the defence, had a field day. Under his adroit and often cajoling questioning, other Andersen officers called by the government ended up bolstering the defence's cause. The notion of an elaborate conspiracy mounted from the accounting firm's headquarters in Chicago and Mr Duncan's Houston office seemed to evaporate.

Then the prosecution raised its game, playing its other strong cards. These included evidence admitted by Judge Melinda Harmon that Andersen had already been reprimanded about two other cases of dubious accounting. This, they said, provided a clear motive for obstruction of justice, that the firm was desperate to avoid involvement in another scandal which could bar it from auditing public companies.

This raises the issue on which the entire case may hinge: did the 12 October email sent from Andersen's Chicago HQ reminding staff in Houston of Andersen's "document retention policy" (getting rid of non-essential and non-official audit material) amount to a thinly veiled instruction to shred?

Prosecutors insist it did. But Nancy Temple, the Andersen lawyer who wrote the memo, has refused to testify in the trial, as has Thomas Bauer, another partner in Andersen's Houston office.

Both have exercised their constitutional right to avoid self-incrimination. Jurors know this. And it may make the closing argument of prosecutor Samuel Buell more plausible.

"It was Humpty Dumpty time for Arthur Andersen," Mr Buell told the court on Wednesday. "They brought all the king's horses and all the king's men, and they couldn't put Humpty together again. Enron's accounting was made up of eggshells."

If the jury buys this, as they deliberate over the weekend, then Andersen will probably be convicted, and go to its grave in disgrace. But if Mr Hardin has proved more persuasive, not only will Andersen's honour be saved. The chances will become much slimmer of making far more complicated criminal charges stick against the very senior Enron executives whose machinations brought the energy firm to bankruptcy.