A House investigations panel on Thursday bluntly challenged the Andersen accounting firm’s claims that its fired auditor, David Duncan, was the main culprit in the destruction of thousands of Enron Corp.-related documents last October.
Committee members accused Andersen’s top managers of sending an apparent signal that Duncan should destroy documents in mid-October just as federal officials started investigating Enron’s massive financial problems.
After a five-hour grilling that began a series of congressional hearings on the energy giant’s Dec. 2 bankruptcy filing, Rep. Billy Tauzin (R-La.), chairman of the House Energy and Commerce Committee, said he was pursuing leads that other documents related to Enron may have been destroyed at Andersen’s Chicago headquarters and elsewhere.
“There were consultants working out of Chicago and other” cities, he told reporters. Andersen executives also said Enron-related documents were “destroyed by others” at Andersen, although they said it was not in the same volume as those destroyed under Duncan’s direction in Houston.
At the hearing, Tauzin raised with Andersen officials the possibility that they could be vulnerable to obstruction of justice allegations for waiting until Nov. 9 to halt the document disposal–more than two weeks after Duncan’s office in Houston began shredding papers and erasing computer files.
Duncan, the lead auditor on the Enron account, refused to testify before the panel, invoking his 5th Amendment protection against self-incrimination. His lawyer said he would testify only if he were granted immunity from prosecution, but the committee declined that request.
“Enron robbed the bank, Arthur Andersen provided the getaway car and they say you were at the wheel,” Rep. James Greenwood (R-Pa.), chairman of the investigations subcommittee, told Duncan. The auditor’s refusal to testify “will hamper the important work of this committee,” Greenwood said.
Duncan, after being sworn in as a witness, said he would invoke the 5th on all questions. But Greenwood revealed Duncan told the panel’s investigators that he was following instructions from headquarters to carry out a document retention and destruction policy insisted on by Nancy Temple, one of the firm’s lawyers, in an Oct. 12 e-mail and subsequent phone conversations.
Fired auditor blamed
Andersen officials denied that they triggered the document disposal and said Duncan, by virtue of the way the company operated, was solely responsible as the lead auditor for Enron. Temple said she “was not aware of any shredding activities.” In essence, the Chicago officials said they simply didn’t know what was going on in Houston.
The officials said Duncan last Oct. 23 called an urgent meeting of the Houston staff to organize an expedited effort to dispose of the documents after he learned that the Securities and Exchange Commission was beginning to look into Enron, and that the energy firm might be sued by shareholders after a substantial third-quarter loss.
The destruction apparently began the next day, with up to 80 staff members taking part, Greenwood said. The panel released an Oct. 24 e-mail from one of the Houston staff members, Kimberly Latham, to other staff saying it would require overtime to get the job done, and that the Houston office was following the company’s policy on document retention and disposal.
Dorsey Baskin Jr., managing director of Andersen’s assurance professional standards group, said Duncan did not consult with headquarters before destroying documents, adding “Mr. Duncan’s actions were simply unacceptable in a person who has major responsibilities at our firm.” C.E. Andrews, a global managing partner, called Duncan’s behavior “appalling.”
Congressional panel members were highly skeptical. With Tauzin and Greenwood leading the way, they elicited from Temple and Andrews that, by Oct. 23, they were aware of Enron’s financial troubles and that the SEC had started an informal inquiry into their client.
Temple said she knew at the time of reports that an Enron official, Sherry Watkins, had written Enron Chief Executive Officer Kenneth Lay, warning that the company could implode from accounting scandals related to Enron’s extensive use of partnerships to hide its debt.
With such knowledge of financial troubles, investigations and the threat of litigation, Tauzin said, Andersen should have immediately halted any destruction of documents rather than wait until Nov. 9 to inform Duncan by voice mail to stop any shredding. The shredding ended after the company received a subpoena from the SEC. Temple followed up on that voice mail with a Nov. 10 letter calling for a stop to document destruction.
Rep. Chris John (D-La.) added that “it is perplexing to me that no one in the highest management of Arthur Andersen” had any indication of what was going on in Houston for more than two weeks and did not act after it was clear the SEC was stepping in. “This is not good,” he said. “This is not consistent with any professional accounting practice.”
Andersen’s document retention and destruction policy essentially called for retaining final work papers on audits while disposing of drafts, personal notes and other materials not necessary to support the final audit, according to Baskin.
But Rep. Diana DeGette (D-Colo.) said the company’s policy amounted, in essence, to “reckless destruction of documents,” and little retention. Duncan informed investigators he was only following company policy in getting rid of documents.
DeGette said any good lawyer knows that when there is a threat of litigation, clients should be advised: “Don’t destroy a thing.” Temple conceded that one of the reasons Andersen hired an outside legal team in early October was the threat of possible litigation as the result of Enron’s financial condition.
Andersen pledges cooperation
In an opening statement, Baskin said Andersen was “determined to get to the bottom of what happened. And we will take whatever decisive action is necessary to restore confidence in the firm.” Andrews said the internal investigation into the document destruction is continuing and that some computer files are being restored. He promised full cooperation with the panel.
Greenwood said that Andersen may be called back to the stand. “At the end of the day, we still don’t have the evidence to suggest that Mr. Duncan, who did not testify, is a rogue employee of Andersen. We have a lot of information we need to gather.”
Tauzin said senior Andersen officials and partners began its “so-called retention and destruction policy to clean out files and alter and delete files from the records.”
The Louisiana Republican also said his Energy and Commerce committee will hold a Feb. 6 hearing on the destruction of documents at Enron itself. These allegations were made earlier in the week by a former Enron executive, Maureen Castaneda, who said shredding of documents continued long after federal authorities began their investigations.
White House ties probed
Sen. Joseph Lieberman (D-Conn.), chairman of the Senate Governmental Affairs Committee, said he would investigate Enron’s ties to the Bush administration, adding that Enron had been exposed as a “house of cards built on outrageous greed and deceit.”
Former SEC chairman Arthur Levitt told Lieberman’s panel that “Enron’s collapse did not occur in a vacuum. Its backdrop is an obsessive zeal by too many American companies to project greater earnings from year to year.” He called it a “culture of gamesmanship.”
Judge orders documents saved
In Houston, U.S. District Judge Melinda Harmon issued an order granting plaintiffs’ attorneys the right to depose Duncan, Temple and several other top Andersen officials.
The judge also ordered Andersen to preserve all Enron-related documents–not just those dating back to 1997, as Andersen and lawyers for the New York and Florida state pension funds had suggested.
“We got what we asked for. This judge proved today that justice does prevail and we do have a judicial system where the courts are listening,” said Neil Rothstein, who is representing the Archdiocese of Milwaukee Supporting Fund, which lost $70,000 in Enron’s collapse.
“This order will truly protect the investors and others in a way that is proper and just,” Rothstein added. “Extraordinary circumstances call for extraordinary measures and simple justice. And she gave us simple justice.”
