Did Andersen Speed Up the Shredding?

Documents just released by a House subcommittee suggest the firm may have rushed its document destruction after learning of the SEC probe

The Houston office of accountant Arthur Andersen may have accelerated its efforts to destroy Enron's audit records -- requiring staffers to work overtime -- after it learned the Securities & Exchange Commission was investigating Enron's accounting, documents released on Jan. 24 by a House Energy & Commerce subcommittee suggest.

The documents -- e-mail messages obtained by BusinessWeek -- show that David B. Duncan, Andersen's lead partner on the Enron account, called a "mandatory" meeting on Oct. 23, 2001, "to discuss the current events of Enron." That was the day after Enron issued a press release disclosing the SEC had requested information about the accounting treatment of the partnership deals that ended up costing Enron $588 million in profit writedowns.

On Oct. 24, the day after the Andersen meeting, Kimberly H. Latham, an Andersen manager on the Enron account, instructed her staff to cooperate with efforts "to insure that our team is in compliance with the Andersen documentation retention guidelines." The staffer who Latham delegated to follow through was less politic: He referred to his task as a "cleanup" of computer files, and on Oct. 25 he gave his colleagues a list of computer directories "that I would like you to clean out," according to the e-mails.


  While they're called "retention guidelines," Andersen's rules regarding records actually call for disposing of documents on a regular schedule. According to Andersen officials, the firm keeps only the papers it deems to be essential to the audit. The guidelines contain exceptions -- including instructions that routine document disposal should cease when the firm learns of "threatened or actual commencement of litigation, governmental, and/or professional investigations."

That makes the wording and timing of the e-mails significant. Congressional probers investigating the Enron affair believe the memos suggest that the destruction of records may have been a deliberate attempt to sweep away the history of the Enron audits. Andersen has acknowledged its Houston office destroyed thousands of documents relating to Enron, stopping only when the firm was subpoenaed by the SEC on Nov. 8.

The computer files referred to in the Oct. 24 and Oct. 25 e-mails weren't yet subject to subpoena, but they appear to fall under Andersen's policies requiring a freeze when an audit is under investigation, the congressional probers believe.


  A House Energy & Commerce Committee subcommittee has subpoenaed Andersen officials, including Duncan and CEO Joseph Berardino, to testify about the shredding and discarding of documents. The panel has copies of the e-mails and is investigating them, says Ken Johnson, committee spokesman. "This has all the outward appearance of people desperately trying to cover their tracks," Johnson says.

After reviewing copies of the e-mails, an Andersen official said they back up the firm's contention that Duncan directed the shredding campaign. Andersen fired Duncan on Jan. 15 and put partner Thomas H. Bauer, who convened the Oct. 23 meeting with Duncan, on administrative leave. "It's clear that David Duncan, a certified public accountant with full knowledge of an SEC investigation, ordered a full-scale document-destruction campaign," says the Andersen official, who spoke on the condition he not be named. "That's consistent with what we found in our internal review."

Duncan's attorney could not be reached for comment.

But the e-mails put the cleanup in the context of Andersen's document retention policies, which could pose problems for the firm. On Oct. 12, an Andersen attorney sent an e-mail to Houston reminding partners and managers of the need to keep up with disposal of outdated documents. Andersen has insisted the lawyer's reminder was routine and unrelated to Enron -- but that Duncan's directions to his staff were not.


  Indeed, the e-mails present the cleanup as an urgent matter. In her Oct. 24 note, Latham told her staff that her supervisor "expects everyone to do what is necessary to adhere to the guidelines. Obviously this should not interfere with client obligations...; however, we do expect that people will be able to do this on an overtime basis, if necessary, for the remainder of the week, or for however long it takes."

Contacted by BusinessWeek Online, Latham said she could not immediately comment on questions about her e-mails.

The Andersen official says no action has been taken against Latham or her supervisor, partner Michael P. Schultz.

By Mike McNamee in Washington

Edited by Douglas Harbrecht

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