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Wide Effort Seen in Shredding Data on Enron's AuditsBy:
Richard A. Oppel Jr.
Washington, Jan. 23 - Scores of people who worked at Arthur Andersen's Houston office were involved in the destruction of documents related to the Enron Corporation, the chairman of one of the Congressional subcommittees that will begin hearings Thursday on Enron's collapse said today. The chairman, Representative James C. Greenwood, Republican of Pennsylvania, head of the House Energy and Commerce oversight subcommittee, said investigators for the subcommittee had determined that document shredding was widespread and that up to 80 people had received orders to destroy papers. He said it called into question Andersen's attempts to blame rogue employees for the episode. The hearings on Thursday will be Congress's first public exploration into the Enron collapse, the largest corporate Chapter 11 bankruptcy filing in American history. Tonight, Enron's chairman and chief executive, Kenneth L. Lay, announced his resignation, saying the many investigations into the company's collapse would require too much of his attention. Last week, Andersen, one of the Big Five accounting firms, fired the lead partner on the Enron account, David B. Duncan, saying he orchestrated widespread document destruction shortly after learning of a government investigation into Enron's finances. But Mr. Greenwood expressed skepticism about that account. "Do you believe that 80 Andersen employees were directed by Mr. Duncan to violate an express provision of policy by Andersen in the face of yet another investigation, and none of them picked up the phone and called their superiors and said, `This doesn't seem right'?" he asked. "The question we need to get to is, Were there instructions from above." Other people close to the investigation said they doubted that the number of Andersen employees was as high as Mr. Greenwood's estimate, but they said it was a much larger group than the company had suggested. Mr. Duncan is expected to appear under subpoena at the energy and commerce subcommittee hearing, but he plans to invoke his Fifth Amendment right against self-incrimination, his lawyer said today. Mr. Duncan, will "rely on his Constitutional right not to testify" unless he is given immunity, his lawyer, Robert Giuffra, told the committee in a letter today. Also today, Congressional investigators made public a memo Mr. Duncan wrote last October saying he expressed concerns about the way in which Enron was about to disclose huge losses from controversial dealings that investigators believed played a significant role in the company's collapse. The disclosure, he said, was misleading to investors and possibly illegal. On Oct. 16, Enron disclosed that it lost $618 million during the third quarter and that it would have to reduce its net worth by $1.2 billion, partly because of dealings with investment partnerships that had been headed by Andrew S. Fastow, who was then the company's chief financial officer. At the time, the company said the losses were the result of one- time losses, leaving the impression that the company could weather the bad quarterly results. But two days earlier, Mr. Duncan warned the company's chief accounting officer, Rick Causey, that the way the company planned to disclose the information might be "misconstrued or misunderstood by investors," according to a memo Mr. Duncan wrote to his files on Oct. 15 that was made available to Congressional investigators. However, the press release Enron issued the next day was "essentially the original presentation," Mr. Duncan wrote. Mr. Duncan said in his memo that he had warned Mr. Causey that the Securities and Exchange Commission initiates enforcement actions against companies that issue financial information that is "materially misleading." He said the company should rewrite its earnings report and bring in lawyers to assure that its statements were not false. One week later, officials in Andersen's Houston office began to shred Enron-related documents on a massive scale, even though Enron had just disclosed that the Securities and Exchange Commission had begun an investigation into its finances. Andersen fired Mr. Duncan last week, saying he had ordered the destruction of the Enron papers. An Andersen spokesman, Charlie Leonard, characterized Mr. Duncan's memo as routine and said it reflected internal debates about accounting issues that occur between auditors and corporate executives. He added: "It looks like that with the exception of some inappropriate phrasing, Mr. Duncan was doing what he was supposed to." Tonight, an Andersen official repeated the firm's assertion that Mr. Duncan's actions, aided by other partners in the Houston office who were demoted or placed on leave last week, had not been sanctioned. "The one glaring fact here is that David Duncan, with full knowledge of an S.E.C. investigation, initiated a massive document destruction campaign," official said. The hearings that begin on Thursday, which will eventually involve 10 different committees, could lead to changes in pension, tax, securities and accounting laws, though many experts are skeptical how far lawmakers will go. Past efforts to tighten laws in these areas, particularly auditing standards, have been beaten back by industry lobbying. The fall of Enron has touched off a scramble in the capital to assign blame and avoid the taint of the company's prodigious political donations. Some Democrats in Congress see the Enron case as a windfall that could dent President Bush's lofty public approval ratings. But many Democrats are also vulnerable because the company spread its largess so widely and the accounting and regulatory practices that led to Enron's collapse took place under Democratic and Republican administrations. In the House, the Energy and Commerce subcommittee will cross-examine three senior Arthur Andersen officials about why the firm destroyed Enron documents after learning about an S.E.C. investigation into the company's finances. Also, the Senate Governmental Affairs Committee will examine whether government policies failed and what new legislation is needed. The first witness will be Arthur Levitt, the former S.E.C. chairman whose efforts to tighten auditing standards two years ago were derailed by opposition from Congress.
A Justice Department official said that he had not seen Mr. Conyers's letter and that officials were still proceeding with their criminal investigation. Also today, the Senate Finance Committee asked Enron to turn over tax returns for the past 16 years, in a letter sent by the committee chairman, Max Baucus, Democrat of Montana, and the ranking Republican, Charles E. Grassley of Iowa. Their request follows the disclosure in The New York Times last week that Enron used almost 900 subsidiaries in tax-haven countries and other techniques to pay no income taxes in four of the last five years. In an interview, Mr. Greenwood said Mr. Duncan had sought immunity for his testimony but had been rebuffed. Justice Department officials are worried that grants of immunity made by Congress might hamper their criminal investigation of Enron and Andersen. Investigators had asked Andersen's chief executive, Joseph F. Berardino, to appear, but Mr. Berardino said he would be willing to attend on a later date. Instead, Dorsey Baskin, a senior technical expert at Andersen, will testify. Two other Andersen officials — Michael C. Odom, a partner in Houston, and Nancy Temple, an in-house lawyer in Chicago — are scheduled to testify. While the House subcommittee hearing will focus on Andersen's document destruction, attention will turn later to the reasons for Enron's flawed accounting. In Mr. Duncan's memo, the auditor says Andersen had expressed serious reservations about Enron's accounting, particularly the company's description of large losses as "nonrecurring," or one-time, charges. Andersen had advised Enron that its use of the term "could potentially be misunderstood by investors," Mr. Duncan's memo states. "We pointed out that such items are, more often than not, included in normal operating earnings in" financial statements that are put together using generally accepted accounting practices. The next day — the same day Enron disclosed the earnings press release that Mr. Duncan objected to — Ms. Temple, who had been involved in discussing the matter with Mr. Duncan, sent an e-mail message to Mr. Duncan and others at the firm suggesting that language be deleted from the memo "that might suggest we have concluded the release is misleading." A copy of the message showed that Ms. Temple appeared to be worried about potential litigation on Enron's finances and she sought to remove her name from the list of people who received the document: "If my name is mentioned it increases the chances that I might be a witness, which I prefer to avoid." Ms. Temple's lawyer did not return a telephone call for comment. Mr. Leonard, the Andersen spokesman, said Ms. Temple was simply worried about waiving attorney-client privilege. Her reference to not concluding that the press release is misleading reflects her understanding that auditors "don't have a right or responsibility to pass judgment on press releases," only formal financial statements, he added. Mr. Duncan, 42, has told investigators that he was only destroying documents in keeping with an Oct. 12 e- mail message from Ms. Temple that emphasized that they follow a policy requiring some documents be destroyed. Mr. Duncan has told investigators he stopped shredding after Ms. Temple ordered it halted Nov. 9. While Andersen officials have sought to blame Mr. Duncan and other employees in Houston office for the destruction of the documents, investigators are skeptical and want to probe why the firm waited more than two weeks after Enron disclosed the S.E.C. investigation to order the shredding stopped. Mr. Greenwood said that in interviews with committee investigators, Mr. Duncan stated that on at least two occasions before Oct. 12, Ms. Temple asked him, "How are you on compliance with the document-retention on Enron?" "Did she really mean that," Mr. Greenwood asked, "or did she mean, `How are you doing on getting rid of the documents?"' FAIR USE NOTICE: This page contains copyrighted material the use of which has not been specifically authorized by the copyright owner. Global Action on Aging distributes this material without profit to those who have expressed a prior interest in receiving the included information for research and educational purposes. We believe this constitutes a fair use of any such copyrighted material as provided for in 17 U.S.C § 107. If you wish to use copyrighted material from this site for purposes of your own that go beyond fair use, you must obtain permission from the copyright owner.
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