The grand jury indictment in 2002 was effectively a death sentence for the 89-year-old firm; its conviction later that year sealed the deal and the firm surrendered its license.
Three years later, the Supreme Court unanimously overturned the verdict citing improper jury instructions, but it was far too late. Today, only a handful of Andersen’s 85,000 employees remain. The only surviving business for the former “big five” accounting firm is a conference center outside Chicago.
“People wanted a scalp, and Andersen’s was the first one available,” said Andersen’s defense attorney Rusty Hardin. “And they just totally ignored 85,000 employees worldwide. 28,000 in this country had their livelihoods destroyed because people needed someone to blame.”
But the federal prosecutor who oversaw the case said the firm has only itself to blame.
“My only regret is, quite frankly, that Arthur Andersen couldn’t see its way to agreeing to something, which really was just admitting to a vary basic legal principle that a company is responsible for the acts of its employees,” said Leslie Caldwell, the former director of Justice Department’s Enron Task Force, now a partner at Morgan Lewis in New York.
In fact, the defense and prosecution came tantalizingly close to a deal that might have saved the firm from oblivion—though just how close they came is a matter of some debate.
Hardin says he had a tentative agreement with Caldwell in April, 2002, weeks after Andersen was indicted, for a so-called “deferred prosecution,” where the criminal case would not proceed as long as the firm met certain conditions.
“Around the first of April or so, we worked out what all the parties in the conversation would agree would be a deferred prosecution agreement which would have saved the company,” Hardin said.
But he says hours later, he was told the deal was rejected by a top official at the Justice Department. “Six weeks later, we were in trial.”
Hardin believes the deal fell victim to the intense public pressure over the Enron scandal.
“They weren’t willing to face the heat for what a deferred prosecution will do,” Hardin said. “And they needed a scalp.”
But Caldwell tells it differently.
"Andersen would not agree to a deferred prosecution which included the statements that they were responsible for..."
“I think our very strong hope in the Andersen investigation was that it would result in a deferred prosecution,” she said, “but the bottom line is, Andersen would not agree to a deferred prosecution which included the statements that they were responsible for, that we had evidence of obstruction of justice by Arthur Andersen’s partners and employees and that they were legally responsible for that. They would not sign that.”
As a result, she says, there never was the agreement Hardin claims.
“I mean, there was certainly a lot of back and forth. And it was certainly our hope and desire to reach an agreement,” she said. But without that admission by Andersen, the deal fell apart.
In overturning the conviction in 2005, the Supreme Court said the jury instructions did not make adequately clear that prosecutors needed to prove the firm’s intent to commit a crime.
“Indeed, it is striking how little culpability the instructions required,” wrote Chief Justice William Rehnquist in the unanimous opinion.
After the decision, David Duncan, the Andersen partner in charge of the Enron audit who had testified against his former firm, was allowed to withdraw his guilty plea. Today, he is Chief Financial Officer at Houston-based U.S. Pipeline, Inc.
The Justice Department revised its guidelines for prosecuting corporations. Today, such prosecutions are comparatively rare.
“The only good thing that came out of this,” Hardin said, “is that the government has learned that you don’t take a sledgehammer and destroy an entire company because of your perception that four or five people did something wrong.”
But Caldwell is unapologetic.
“My regret is that we weren't able to work it out, because they were not willing to budge,” she said.
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