A senior Andersen partner–the only one at the firm with significant experience as a federal regulator–testified Monday that he warned the top auditor on the troubled Enron Corp. account not to destroy documents.
John Riley, sent by Andersen officials to Houston last October to troubleshoot Enron’s mounting accounting problems, said he was sitting in a conference room at Andersen’s office at the energy trading firm when he heard the constant whirring of a nearby paper shredder.
David Duncan, Andersen’s lead man on the Enron account, then walked by.
“This wouldn’t be the best time in the world for you to be shredding a lot of stuff,” Riley recalled telling Duncan.
Duncan seemed unfazed and almost nonchalant, Riley recalled, and said the shredder was used for discarding routine but confidential client information.
Riley’s testimony came as Chicago-based Andersen’s federal obstruction-of-justice trial entered its fifth week.
Duncan has pleaded guilty to an obstruction charge and turned government informant. He has testified that he ordered Andersen staffers to clean up and destroy files after the Securities and Exchange Commission launched an investigation into $1.1 billion in Enron losses.
Riley’s testimony, the last of a dozen witnesses expected for the defense, seems from Andersen’s perspective to point to Duncan as the shredding ringleader.
But under questioning from defense lawyer Rusty Hardin, Riley, who worked for the SEC for 11 years, maintained that he did not think Duncan was trying to destroy documents to evade a federal investigation.
The defense hopes that Riley’s expertise–he served in a variety of review positions at the SEC from 1984 to 1995–will demonstrate to jurors that Andersen was not worried about a federal probe.
Riley said he was not anticipating an investigation last October, even though Duncan and other Andersen partners had been informed several days earlier that one was under way. Even when Riley learned of the probe on Oct. 31, he was not alarmed, he said.
Riley spent the next week helping Andersen staffers respond to SEC concerns, he said. Andersen was trying to present Enron’s case to the SEC, Riley testified, and was not attempting to defend itself.
Andersen accountants signed off on questionable audits concerning Enron partnerships. In conferences with Andersen partners, including Riley, Duncan admitted to accounting problems, Riley testified.
Probe knowledge denied
Under cross-examination from federal prosecutor Andrew Weissmann, Riley said that even though his supervisors brought him to Houston for his SEC experience, he was dealing more with accounting matters.
Weissmann appeared incredulous that no one at Andersen told Riley of the SEC inquiry before he arrived in Houston, as Riley was known as Andersen’s “SEC man.”
On Oct. 31, when Riley saw the SEC enforcement letter, he noted that it had been signed by the agency’s chief of accounting enforcement, he said.
“The folks who signed this letter were extremely high up at the SEC?” Weissmann asked.
Riley agreed that the signature was “out of the ordinary” and that it signaled the seriousness of the federal investigation.
“Did you keep that a secret?” Weissmann asked.
“No,” Riley replied.
Weissmann peppered Riley with questions about faulty auditing of Enron and about Riley’s conclusion, reached in November, that Andersen had done a poor job monitoring Enron’s questionable and aggressive financing.
Witness confronted
Before Riley took the stand, Assistant U.S. Atty. Sam Buell attempted to show inconsistencies in the testimony of Duncan’s former secretary.
Shannon Adlong admitted under cross-examination to conflicts between her testimony Friday and interviews with government agents last winter.
“I can’t remember everything I said to everybody I talked to over this,” she said testily after some of Buell’s questions flustered her.
On Friday, Adlong painted Duncan as a reluctant shredder of records who was simply trying to comply with Andersen guidelines to dispose of old and unnecessary paperwork. Adlong testified that Duncan had collected two or three boxes of paperwork to be destroyed and that roughly half had been “Enron-related.”
But on Monday, Buell showed her a statement that she had made to federal investigators in February stating that all the materials had dealt with Enron.
“It was just a mixture of things,” she said weakly, before admitting that her testimony in February probably had been correct.
The defense plans to end its case with Riley on Tuesday. Prosecutors then are expected to present rebuttal witnesses. Closing arguments will follow, and the case could go to the jury as early as Wednesday.
U.S. District Judge Melinda Harmon said Monday that she investigated a dispute among jurors, resolved the issue and did not anticipate it affecting deliberations.
