United States Court of Appeals Fifth Circuit F I L E D REVISED June 24, 2004 June 16, 2004 IN THE UNITED STATES COURT OF APPEALS Charles R. Fulbruge III FOR THE FIFTH CIRCUIT Clerk No. 02-21200 UNITED STATES OF AMERICA, Plaintiff-Appellee, versus ARTHUR ANDERSEN, LLP, Defendant-Appellant. Appeal from the United States District Court for the Southern District of Texas Before REAVLEY, HIGGINBOTHAM, and BENAVIDES, Circuit Judges. PATRICK E. HIGGINBOTHAM, Circuit Judge: Today we decide one of the many cases arising from the rubble of Enron Corporation, which fell from its lofty corporate perch in 2001 wreaking financial ruin upon thousands of investors, creditors, and employees. Like a falling giant redwood, it took down with it many members of its supporting cast. Our present focus is upon one of those, Arthur Andersen, LLP, then one of the largest accounting and consulting firms in the world. Arthur Andersen appeals from a judgment of conviction entered in the Southern District of Texas upon a jury verdict finding it guilty of obstructing an official proceeding of the Securities and Exchange Commission, in violation of 18 U.S.C. § 1512(b)(2). The indictment leading to the conviction was returned on March 7, 2002, charging Andersen in a single count of corruptly persuading one or more Andersen personnel to withhold, alter, destroy, or conceal documents with the intent to impair their availability in an official proceeding. That proceeding, which the government said Andersen knew was imminent and inevitable, was an investigation by the SEC into the relationship between Enron and Andersen, from whom Enron obtained accounting, auditing, and consulting services. Trial commenced on May 6, 2002, and the verdict was returned on June 15, 2002. Writ large, the government says that Andersen, in an effort to protect itself and its largest single account, ordered a mass destruction of documents to keep them from the hands of the SEC. Andersen asks this court to reverse its conviction, urging errors in four evidentiary rulings, misconduct by the prosecutor in his rebuttal jury summation, and two legal contentions regarding the required proof under § 1512(b)(2). The evidentiary rulings include admitting extensive evidence regarding two unrelated SEC enforcement actions against Andersen, excluding evidence of the volume of documents Andersen did not destroy, and excluding impeachment evidence. Regarding the proof required by § 1512(b)(2), Andersen urges that given its element of “corruption,” the government had to 2 prove more than that it acted with an intent to impede the SEC. Finally, Andersen asserts that the government had to prove that Andersen intended to interfere with a “particular” proceeding. We are not persuaded that this conviction is flawed by reversible error and we affirm the judgment of conviction. I During the 1990's, Enron transformed itself from a natural gas pipeline operator into a trading and investment conglomerate with a large volume of trading in the energy business. Andersen both audited Enron’s publicly filed financial statements and provided internal audit and consulting services. By the late 1990's, Andersen’s “engagement team” for its Enron account included more than 100 people, a significant number of which worked exclusively in Enron quarters in Houston, Texas. From 1997 through 2001 the engagement team’s leader was David Duncan. He was in turn subject to certain managing partners and accounting experts in Andersen’s Chicago office. Enron was a valued client producing 58 million dollars in revenue in 2000 for Andersen with projections of 100 million for the next year. Enron’s Chief Accounting Officer and Treasurer throughout this period came to the employ of Enron from the accounting staffs of Andersen, as did dozens of others. This was a close relationship. Indeed, the jury heard evidence that Andersen removed at Enron’s request at least one accountant from his assignment with Enron after Enron disagreed with his accounting advice. 3 With Enron’s move to energy trading and rapid growth came aggressive accounting, pushing Generally Accepted Accounting Principles to its advantage. Part of this picture included Enron’s use of “special purpose entities,” SPEs. These were “surrogate” companies whose purpose was to engage in business activity with no obligation to account for the activity on Enron’s balance sheet. Four of these SPEs - called Raptors - play a large role in this story. They were created in 1999 and 2001, with the assistance of Andersen, largely capitalized with Enron stock. The Raptors engaged in transactions with “LJM,” an entity run by Andrew Fastow, Enron’s Chief Financial Officer. By late 2000 and early 2001, the traded price of Enron’s stock was dropping and some of the Raptor’s investments were also turning downward. Some of the SPEs were profitable and some were experiencing sharp losses. But aggregated they reflected a positive return to Enron. GAAP would not permit such an aggregation of the four entities and Andersen’s Chicago office told David Duncan that it would not - that it was a “black and white” violation. That advice was ignored and the losses were buried under the profits of the group in the public reporting for the first quarter 2001. The slide of Enron stock continued, dropping some 50% from January to August 2001. The summer of 2001 brought problems to Andersen on other fronts, and these “unrelated” events later become important to the issues before us. In June 2001 Andersen settled a dispute with the SEC regarding Andersen’s accounting and auditing work for Waste 4 Management Corporation. Andersen was required to pay some $7 million, the largest monetary settlement ever exacted by the SEC, and Andersen suffered censure under SEC Rule 102(e). Then in July 2001, the SEC sued five officers of Sunbeam Corporation and the lead Andersen partner on its audit. Meanwhile, events at Enron began to accelerate. On August 14, 2001, Jeffrey Skilling, Enron’s CEO, resigned, pushing Enron stock further downward. Within days, Sherron Watkins, a senior accountant at Enron, formerly at Andersen, warned Enron’s Chairman, Kenneth Lay, that Enron “could implode in a wave of accounting scandals.” She also warned David Duncan and Michael Odom, an Andersen partner in Houston who had oversight responsibility for Duncan. Chairman Lay promptly asked Enron’s principal outside legal counsel to examine the accused transactions. And by early September, senior Andersen officials and members of its legal department formed a “crisis-response” group, including, among others, its top risk manager and Nancy Temple, an in-house lawyer in Chicago assigned to Enron matters on September 28, 2001. Possible proceedings became a reality on November 8, 2001, when Andersen received an SEC subpoena. The time line between September 28 and November 8, from a possibility of a proceeding to fact, is important and we turn briefly to that narrative.1 1 The indictment alleged that the acts of obstruction took place between October 16 and November 9, 2001. 5 On October 8, Andersen contacted a litigation partner at Davis, Polk and Wardwell in New York regarding representation of Andersen. The following day, Nancy Temple discussed the problem of Enron with senior in-house counsel at Andersen. Her notes from this meeting refer to an SEC investigation as “highly probable” and to a “reasonable possibility” of a restatement of earnings. Her notes also recorded, “without PSG agreement, restatement and probability of charge of violating cease and desist in Waste Management.” Two days later, on October 10, Michael Odom urged Andersen personnel to comply with the document retention policy, noting “if it’s destroyed in the course of normal policy and litigation is filed the next day, that’s great . . . we’ve followed our own policy and whatever there was that might have been of interest to somebody is gone and irretrievable.” On October 12, Temple entered the Enron crisis into Andersen’s internal tracking system for legal matters, labeling it “government regulatory investigation,” and asked Odom if the engagement team was in compliance with Andersen’s document policy. Odom forwarded the email to Duncan in Houston. Meanwhile, Enron was facing an October 16 date for announcing its third quarter results. That release had to disclose a $1.01 billion charge to earnings and, to correct an accounting error, a $1.2 billion reduction in shareholder equity. Enron’s draft of the proposed release described the charge to earnings as “non- recurring.” Andersen’s Chicago personnel advised that this phrase 6 was misleading, but Enron did not change it. With one exception, Andersen took no action when its advice was not followed: Temple suggested that Andersen’s characterization of the draft release as misleading be deleted from the email exchanges. An SEC letter to Enron quickly followed the releases of October 16. In the letter the SEC advised that it had opened an informal investigation in August and an additional accounting letter would follow. Andersen received a copy of the letter on Friday, October 19. A Saturday morning conference of Andersen’s Enron crisis group followed. While the meeting traversed a range of issues, Temple again reminded all “to make sure to follow the policy.” The following Tuesday, October 23, Enron had a telephone conference with security analysts. At the same time, Duncan scheduled an “urgent” and “mandatory” meeting in Houston at which, following lengthy discussion of technical accounting issues, he directed the engagement team to comply with Andersen’s records retention policy. On October 26, a senior partner at Andersen circulated an article from the New York Times discussing the SEC’s response to Enron. In an email, he commented that “the problems are just beginning and we will be in the cross-hairs. The marketplace is going to keep the pressure on this and it’s going to force the SEC to be tough.” Evidence that this prediction of SEC toughness was sound came quickly. On October 30, the SEC sent Enron a second letter requesting accounting documents - a letter signed by the two 7 top enforcement division officials. Throughout this period Andersen’s Houston office shredded documents. Government witnesses detailed the steady shredding and deletion of documents and the quantity of paper trucked away from the Houston office. Almost two tons of paper were shipped to Andersen’s main office in Houston for shredding. The government produced an exhibit at trial charting the time and quantity of the carted waste paper from January 2001 through December of that year. The pounds carted remained fairly steady at a rate under 500 pounds, but spiked on October 25 to just under 2500 pounds. The shredding continued until the SEC served its subpoena for records on November 8. Temple advised Duncan that the subpoenae had been served. The next day Duncan’s assistant advised the Houston team: “Per DAVE – No more shredding. . . . We have been officially served for our documents.” Enron filed for bankruptcy on December 2, 2001. The following April, David Duncan pleaded guilty to obstructing the SEC. II We turn first to Andersen’s claims of error in certain evidentiary rulings at trial. 1 The first such contention urges error in the district court’s exclusion of Andersen’s evidence of the volume of documents retained by the engagement team that were either not deleted or recaptured and produced to the SEC. This evidence was relevant, Andersen 8 argues, because it is inconsistent with the charge that its personnel were “corruptly persuaded” to destroy documents and delete emails to keep them from the SEC. Andersen’s explanation for the shredding and deleting, at least for the upward spike on October 23, was that personnel in its Houston office were attempting to clean up their files in anticipation of their examination by Chicago supervising personnel, and that the presence of multiple copies of significant documents was evidence that there was “no systematic attempt to root out embarrassing materials.” The argument continues that the district court misunderstood the issue. Pointing to an in limine order, Andersen argues that Judge Harmon believed the proffered evidence inadmissible as an attempt to offer evidence that “on other occasions the defendant acted innocently,” when the true thrust of the evidence was to negate the evidence that any person acting for Andersen acted corruptly and with the intent necessary to commit the charged crime. The government replies that refusing to admit the documents into evidence was simply the court’s enforcement of its pretrial ruling on discovery – that the defendant could not offer documents in trial that it had not produced for examination by the prosecution before trial; that Andersen never authenticated the documents nor by a proper predicate demonstrated that the documents not destroyed, to which it wanted to point, were relevant Enron documents. Relatedly, the government notes that other evidence was before the jury demonstrating that not all of the documents were destroyed. 9 Finally, it argues that the evidence supporting Andersen’s conviction is so powerful, that any error was not reversible error. The government relied on the volume of documents destroyed as evidence of Andersen’s intent. It follows that competent evidence countering the government’s proof of the volume of shredding, as well as its timing, undeniably had some relevance. To put the issue in perspective, Andersen did not attempt to deny that it shredded large numbers of documents and for sustained periods, leaving the government’s assertion to this extent largely unchallenged. Nor does Andersen’s principal argument claim error in the exclusion of specific documents alleged to have been destroyed. In sum, that all documents were not destroyed and that large numbers of documents were produced to the SEC by Andersen was not challenged.2 Some 21 boxes of Duncan’s preserved desk files were introduced by Andersen and displayed to the jury. Andersen’s explanation for the undeniable surge in shredding and the persistent and uncustomary reminders to employees to abide Andersen’s retention policy was that it wanted to leave only the work papers of auditing efforts, and that Duncan did not want his superiors in Chicago to face his unkempt files. That explanation pointed to the upsurge in papers trucked away shortly after he learned of his superior’s planned visit to Houston. The jury was free to evaluate this testimony. 2 There was a misstatement by a prosecutor regarding an email he represented to the jury was deleted and not produced by Andersen. That was corrected on the objection of the defense. We describe this event later in Part IV while addressing Andersen’s claim of prosecutorial misconduct. 10