The US Supreme Court last week overturned Arthur Andersen’s criminal conviction relating to its work for Enron and in doing so issued a warning to federal prosecutors not to be so aggressive.

“The Supreme Court has been looking for a case or two to remind the legal world that pre-Enron rules still apply. All the old rules need to be followed, even when they apply to stocks and shares,” says Richard Baumann, a US capital markets partner at Dorsey & Whitney.

Akin Gump Strauss Hauer & Feld partner Richard Rosenfeld, who recently joined the firm from the Securities and Exchange Commission (SEC), agrees. “The decision sends a message that regulators and prosecutors must follow the laws that they are prosecuting and regulating precisely and correctly. Overzealousness should not occur. There is enough out there for the US government to concern itself with that it should not concern itself with large, publicity-driven cases,” he says.

While the Department of Justice may heed this warning, state attorneys, including one particular crusader, New York attorney general Elliot Spitzer, are unlikely to let Wall Street off the hook. Spitzer declined to comment on the ruling, but he has stated that his run for New York governor will not distract him from the day job and the Supreme Court probably will not either.

Despite Spitzer’s antics, Latham & Watkins has won an important victory for the business community. Latham partner Maureen Mahoney took control of the case for the appeals court and Supreme Court after Mayer Brown Rowe & Maw had lost the case in the lower court. Mahoney says: “Hopefully, this decision begins to thaw some of the chilling effects on routine business functions that resulted in the wake of Andersen’s conviction.”

But the Sarbanes-Oxley Act still exists and even the document retention issue is not dead. “Only persons conscious of wrongdoing can be said to ‘knowingly [and]… corruptly persuade’,” said the opinion of the court, citing the statute under which Arthur Andersen was indicted. “The jury instruction failed to convey the requisite consciousness of wrongdoing. Indeed, it is striking how little culpability the instruction required.”

“This sends a sigh of relief through the business world,” says Akin Gump’s Rosenfeld. “The decision of the lower court was a decision that made it very difficult for in-house counsel to do their job.”

While Arthur Andersen has been cleared, in-house counsel need to make clear decisions on document retention in the electronic age. Joe Cyr, a litigation partner in Lovells’ New York office, says: “Much of the communication that used to be filed as correspondence is not necessarily filed anymore. When there’s litigation, the electronic information is not only stored in each of the hard drives of individuals, but also on servers and backup tapes. It’s an enormous exercise to get that information and corporations have a tremendous task in deciding what to preserve. No one knows when they might need that information to defend litigation.”

So the likes of Rosenfeld and his former colleagues who have quit the SEC and flocked to private practice still have jobs to do. By December 2006 more than 1,900 foreign companies registered with the SEC will have to be fully compliant with Sarbanes-Oxley.

The SEC declined to comment on the Supreme Court decision, but it was ironic that SEC chairman William Donaldson announced his resignation the very next day. His successor is likely to be former Latham & Watkins partner Chris Cox, who has been nominated by US president George W Bush to be the next chairman. The SEC’s post-Enron work is far from done.

Baumann is busy creating a US capital markets practice at Dorsey. He joined the Minneapolis firm from Norton Rose late last year. He concludes: “I think lawyers’ work goes up during volatile periods and this is a volatile period. If one guy is creating rules and another is taking them away then that equals volatility.”