Jury declares itself deadlocked over Andersen court case

The jury in the trial of Arthur Andersen last night pronounced itself "hopelessly deadlocked" over whether the accounting giant deliberately obstructed justice by shredding audit documents of the failed energy concern Enron.

Word of the failure of the nine-man, three-woman panel to reach a decision came after seven days and some 56 hours of deliberation at the federal trial in Houston, during which it became increasingly apparent that jury was heavily divided.

But federal judge Melinda Harmon last night told US government prosecutors and Andersen defence attorneys that she would order jurors to continue to try to reach a verdict. Whether to convict or to acquit, a unanimous decision is required.

Even so, last night's dramatic announcement ­ the fist word from the jury since it requested a dictionary on Sunday ­ does not bode well for the government. Given the failure thus far to reach a verdict despite such lengthy deliberations, legal analysts said it was unlikely that any extra debating time would produce a breakthrough.

If that proves to be the case, the outcome would be a heavy defeat for the Justice Department, which brought the single count charge against the world's fifth largest accounting firm. It also does not bode well for any future prosecutions of former senior executives of Enron itself.

When the trial began on May, the case seemed relatively straightforward ­ featuring a single count and a star government witness, the former lead Andersen partner on the Enron account who had already pleaded guilty to obstructing justice himself, by ordering the destruction of the audit documents.

Andersen is accused of shredding paper documents and erasing computer records related to Enron between 23 October and 8 November last year after it learned of a inquiry by the Wall Street regulator, the Securities and Exchange Commission, into the energy company's accounting practices. Andersen, however, argued its employees were merely following its standard document retention policy. The destruction of unneeded papers was merely a routine effort to organise files.

David Duncan, the former lead partner who testified for the government, moreover told the court that when he ordered the audit material be destroyed, he did not believe he was doing anything wrong. Only later, and after "much soul searching" and discussion with his family did he conclude that he had committed a crime.

The defence contended that he had changed his mind merely to strike a plea bargain with prosecutors and thus avoid a jail sentence of up to 10 years.

If the government cannot secure the conviction of Andersen, lawyers say it would have scant prospect of making vastly more complicated fraud charges stick against the Enron executives who set up the secret off-balance sheet partnerships that led last December to the largest bankruptcy in US history.

As the trial progressed, several witnesses called by the prosecution gave evidence which, in fact, seemed to weaken the government's case. The result was enough doubt in some jurors' minds to lead the foreman, a professor of applied mathematics, to send the judge a note that said simply: "We are unable to reach a unanimous decision." But even if the accounting firm does ultimately escape conviction, it will be a Pyrrhic victory. Andersen faces a small mountain of lawsuits from angry Enron shareholders and employees who have seen their savings and livelihoods vanish ­ as well as possible civil punishment from the SEC.

Few expect the partnership to survive in any real form. More than 650 clients have deserted Andersen, while its partners have been switching in droves to Andersen's rivals in what used to be the "Big Five" global accounting firms ­ now about to become just four.