Eight days before Enron Corp. was notified last fall of a federal probe into its failing finances, its Andersen auditors discussed in a conference call with their attorney that a Securities and Exchange Commission investigation was “highly probable.”
The next day, Andersen partner Michael Odom instructed regional staffers in a videotaped presentation to destroy everything in client files that was not included in a final or formal audit. If anyone then inquired about files, or a lawsuit was filed, it would be too late, Odom said, adding “that’s great.”
“Whatever there was that may have been of interest to someone, it’s gone and it’s irretrievable,” Odom said on the Oct. 10 video. “We have complied with our policy.”
This sequence of what Andersen executives knew and did comes from notes written in October and November by Andersen lead attorney Nancy Temple and from Odom’s video, which were put into evidence Monday by prosecutors in Andersen’s federal obstruction of justice trial.
From the firm’s e-mails, Temple’s scrawl, and Odom’s meeting with regional supervisors, the government unveiled its strongest argument to date in the 2-week-old trial that Andersen illegally engaged in a conspiracy to destroy Enron-related documents in the face of a mounting federal inquiry.
The damaging content of the documents and video seem to offset to some degree the boost Andersen received last week when star government informant David Duncan, Andersen’s former lead partner on the Enron account, testified that he destroyed nothing of consequence in his files. Duncan pleaded guilty to obstruction of justice in April, yet testified over five days that the shredding was inconsequential.
But through the testimony of FBI agent Barbara Jean Sullivan, prosecutors introduced e-mails from people on Duncan’s staff in Houston that portrayed them feverishly working overtime on Oct. 24 to rip up thousands of pages of documents. Shredding also took place in Andersen offices in London and Portland, Ore., where regional audits of Enron accounts were compiled.
“AARRGGH: Send more shredding bags,” Shannon Adlong, Duncan’s assistant, wrote jokingly in an e-mail as the document destruction was in high gear. “Just kidding. We have ordered some.”
Working through a weekend
Several managers instructed the staff via e-mails to work through a weekend to get rid of dozens of boxes of documents and hundreds of computer e-mails and files. They wrote to one another of their progress.
Peter Kwong in Andersen’s Portland office sent Houston a note Oct. 24 that Enron-related documents “have been deleted or destroyed” according to instructions relayed from Texas.
By then, according to Temple’s handwritten notes mostly made during conference calls, Andersen auditors in Chicago and Houston were scrambling to correct faulty accounting after Enron’s massive losses of more than $1 billion became public.
Temple, who has decided not to testify by invoking her constitutional right to avoid self-incrimination, took brief notes in a self-styled shorthand. Her writings show Andersen partners trying to respond to correct the firm’s past Enron audit mistakes, inform and advise Enron officials, and grapple with what documents to retain.
Temple’s notes show that Andersen was especially fearful of an SEC backlash because it had been fined $7 million in connection with a botched audit of Waste Management Inc. and had promised not to repeat the mistakes.
In one of her notations, Temple wrote that Andersen partners fretted in a conference call about “possible” SEC troubles because of the possibility of a repeat violation. In another page, Temple wrote of questions raised in a call about culpability for Andersen in correcting the errors in Enron’s balance sheet.
“Are we admitting something when we change?” she wrote.
Even before the Enron scandal became public in mid-October, Temple was part of a debate within Andersen over what paperwork to retain.
“What docs should we keep?” she wrote on Oct. 1. “Historically, keep everything … 3-4 buckets of e-mail.”
But Odom, a lead supervisor in the Houston office who sometimes advised on the Enron account, clearly explained Andersen’s shredding policy a few days later to roughly 100 managers in New Orleans, Houston and offices in the Southwest.
“Once litigation is filed, we are not permitted to destroy anything,” Odom told his staff.
Harmed by documents in past
But in past lawsuits, Andersen’s cause has been harmed by too many documents in the files, Odom told the staff. He advised his staff to keep only memos and calculations that are solely part of a final audit. Andersen was reeling not only from the Waste Management fallout but also from suits filed in connection with questionable audits of Sunbeam Corp.
“We found a lot of stuff we shouldn’t have retained,” Odom said. “It’s embarrassing and extra work for us to have those things hang around. Anything we retain is subject to subpoena.”
However, Odom said, “if it’s destroyed through the course of normal policy, and litigation is filed the next day, that’s great.”
Odom does not refer to the Enron account on the videotape nor does he instruct anyone to destroy specific documents. Roughly 10 of the estimated 100 Andersen employees who heard Odom’s presentation worked on the Enron account, Andersen officials said.
Duncan testified last week that he was not swayed by Odom’s videotape presentation.
Andersen defense attorneys are attempting to convince jurors that Andersen did nothing to hide crucial documents from federal investigators. The crux of the case against Andersen is based on e-mails, notes and videotape that Andersen retained, they argue.
“They’ve either got to be the world’s worst crooks or they were acting in good faith,” defense attorney Rusty Hardin told reporters outside the court, referring to Andersen partners.
Not only did Andersen bill Enron at least $750,000 for work regarding the SEC inquiry in October and November, Andersen auditors kept detailed records of the overtime they worked in shredding documents, according to e-mails shown to jurors Monday.
But on Nov. 9, Temple circulated word through the Andersen hierarchy that the SEC issued a subpoena for Andersen paperwork. She ordered a halt to the destruction and e-mailed Duncan who instructed his assistant Adlong to tell the Enron team.
“Per Dave, no more shredding,” Adlong wrote. “If asked, tell them Dave said `you can’t.'”
