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Enron auditor crime { May 14 2002 } Original Source Link: (May no longer be active)
http://www.washingtonpost.com/wp-dyn/articles/A11607-2002May13.htmlhttp://www.washingtonpost.com/wp-dyn/articles/A11607-2002May13.html
Enron Auditor Admits Crime
Andersen's Duncan Ordered Shredding
By Carrie Johnson
Washington Post Staff Writer
Tuesday, May 14, 2002; Page A01
HOUSTON, May 13 -- David B. Duncan, the former chief outside auditor of Enron Corp., told a federal jury today that he knew he had committed a crime when he instructed his colleagues at Arthur Andersen LLP to destroy documents as their energy client collapsed.
"I obstructed justice," testified Duncan, the government's key witness in the trial of his former company. "I instructed people on the engagement team to follow a document-retention policy which I knew would result in the destruction of documents."
Duncan was fired by Andersen in January after an internal probe revealed that the company shredded documents and deleted e-mail messages related to Enron. He pleaded guilty to a single count of obstruction of justice, under a plea agreement that could result in up to 10 years in prison.
The statements by the 43-year-old accountant -- his first public remarks since his plea last month -- are damaging to Andersen's case as the accounting firm must prove that Duncan did nothing wrong even though he has pleaded guilty to illegal destruction of documents. A partnership can be found criminally liable for the acts of one of its partners.
During opening arguments last week, an Andersen attorney said that the firm was not trying to hide anything from the government but was trying to get papers in order for the Securities and Exchange Commission. He suggested that Duncan was pressured to plead guilty and noted that in early statements Duncan had told investigators he had done nothing wrong.
Andersen is facing a single charge of obstruction of justice for the destruction of the documents after its employees learned of a federal investigation last fall. Until the Enron scandal, Andersen was one of the larger accounting firms, with 85,000 employees worldwide and thousands of clients. Now it is fighting for its survival as clients and employees depart. A conviction would prohibit the firm from auditing publicly traded companies unless it received a waiver from the SEC.
Duncan's testimony began late today and is scheduled to continue Tuesday.
Andersen's lead attorney, Rusty Hardin, did not get a chance today to question Duncan, but he complained outside of the jury's earshot about U.S. District Judge Melinda Harmon's rulings. He said Harmon was allowing prosecutors too much latitude in introducing e-mail messages and notes.
The arguments the prosecutors are making "are the most foreign interpretations of the rules of evidence I have ever heard," Hardin said. "I feel like we're not able to put on a defense."
Harmon, in turn, voiced frustrations with Hardin, at one point entreating him to stop objecting to the prosecutors. "Mr. Hardin, please don't ask me to ask you to sit down, please," the judge said.
Duncan, who worked at Andersen for 20 years, said Enron was one of Andersen's five biggest clients, generating more than $58 million in revenue last year. Enron filed for bankruptcy protection in December after trouble with its complex financial partnerships came to light and is itself facing scrutiny from Congress, the SEC and federal prosecutors.
Prosecutor Andrew Weissmann sought to display a tight bond between Andersen and Enron. He asked Duncan to show the jury a floor plan of the firm's Houston offices and described employees at the companies sitting side by side. He noted that many Andersen staffers freely moved to work for Enron over the years, including Jeff McMahon, who became Enron's president for a few months earlier this year, and Sherron Watkins, who raised concerns internally about Enron's accounting practices.
Some 100 Andersen employees around the world worked full time on Enron matters and many more worked part time, Duncan said. Duncan earned more than $700,000 in 2001. He described how he and Andersen lobbyist Jeff Peck worked with Kenneth L. Lay, then Enron's chairman, to fight a proposal by the SEC to tighten restrictions on firms that provided both accounting and consulting advice to clients, as Andersen did.
Earlier today, prosecutors focused on Andersen's document-retention policy, which they allege encouraged Andersen workers to shred Enron-related documents. Andersen lawyer Nancy Temple sent an e-mail on Oct. 12, reminding workers that they were to retain documents key to projects and destroy those extraneous or redundant.
The SEC sent a letter of inquiry to Enron in mid-October but did not subpoena Andersen records until Nov. 8. Prosecutors said Andersen reached out to lawyers at Davis, Polk & Wardwell in New York for legal advice related to Enron as early as Oct. 8.
Andersen partner Amy Ripepi testified that she did not think the e-mail was a directive to shred work papers. "I did not take from her comments it was an indication that someone ought to destroy something," Ripepi said.
Ripepi, a partner in Andersen's Professional Standards Group, testified that she did have multiple conversations with other accounting experts at Andersen during October about the document-retention policy.
One partner, John Stewart, expressed concern over the papers he saved, saying they would be "good for" the professional standards group, which had balked at the high-risk accounting methods used for Enron, "but bad for Andersen," Ripepi said.
Prosecutors also alleged that notes Temple took of an Oct. 9, 2001, conference call among Andersen accountants and lawyers showed it was "highly probable" that Andersen officials knew they would face an SEC probe weeks before their documents were subpoenaed.
© 2002 The Washington Post Company
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