A look at the Andersen Verdict

First the news announcement:

From the NY Times:

"WASHINGTON, May 31 - With a brief, pointed and unanimous opinion, the Supreme Court on Tuesday overturned Arthur Andersen's conviction for shredding Enron accounting documents as that company was collapsing in one of the nation's biggest corporate scandals."

From The BBC:

"Chief Justice William H Rehnquist said the instructions were too vague for the jurors to decide correctly whether Andersen had obstructed justice."

While much has been being made of the Supreme Court's ruling, it will have little affect on the company.

From the New York Times:
Justices Reject Auditor Verdict in Enron Scandal - New York Times:

"But the decision represents little more than a Pyrrhic victory for Andersen, which lost its clients after being indicted on obstruction of justice charges and has no chance of returning as a viable enterprise. The accounting firm has shrunk from 28,000 employees in the United States to a skeleton crew of 200"

Much evidence suggests that the auditors' reputation was destroyed before the court verdict (see Chaney-Philipich (2002), Callen-Morel, Godbey-Mahar (2004) and many others who both found that Andersen audited firms suffered as Andersen's reputation fall in the aftermath of the Enron debacle.

For instance from Godbey-Mahar paper (in Research in Finance 2004):

"Both long-term and short-term event-studies were used to examine the effects on implied volatility, of events that were deemed as damaging to Andersen'’s reputation. The results of all of the tests yield strong evidence that ....that auditor reputation plays an important role in reducing information asymmetries between investors and the audited firm."

Which is to say, while we can feel bad that the jury supposedly got the case wrong, it is unlikely to have made much difference. Even prior to the trial, most firms had dropped Andersen as their auditor and the market was penalizing firms who used Andersen.

What does matter however is how this ruling will affect future cases. Again from the NY Times:

"...in truth the Supreme Court's judgment simply underscores the significance of a rule in white-collar cases: a jury cannot properly convict without first being required to conclude that a defendant had intended to engage in wrongdoing."