FBI Probe Of Enron Begins in Houston
Firm Calls Agency After Allegations Of
Data Shredding
By Paul Duggan and Susan Schmidt
Washington Post Staff Writers
Wednesday, January 23, 2002; Page A01
HOUSTON, Jan. 22 -- FBI agents descended on Enron's corporate headquarters today to begin investigating document shredding
at the bankrupt energy trader.
The federal investigators were called in by Enron Corp. officials who rushed to the 19th floor of the company's office tower
Monday night after being told that documents had been destroyed after the government began inquiring into the company's
collapse in October.
Enron attorney Kenneth Marks said at a court
hearing today that the Enron officials who
visited headquarters Monday night
found a trash can containing "shredded material,
" which was "immediately secured." The officials
sealed off the 19th and 20th
floors pending the FBI's arrival, he said.
The Justice Department already is investigating the shredding of documents at Enron's accounting firm,
Arthur Andersen, which led last week to the firing of the accounting firm's lead Enron auditor, David B. Duncan.
And the House Energy and Commerce Committee announced
today that it will issue subpoenas Wednesday ordering Duncan; Joseph F. Berardino, Andersen's chief executive; and two other Andersen officials, attorney Nancy
Temple and risk manager Michael Odom, to appear to testify at a hearing Thursday on the Andersen shredding. Andersen signed off on Enron financial
statements, whose correction last fall triggered the spiral into bankruptcy.
Committee spokesman Ken Johnson said it is likely Duncan will invoke his Fifth Amendment protection against
self-incrimination and not testify. Robert Giuffra, Duncan's attorney, said, "No final decision has been made" on whether his
client will testify.
Marks said that when Enron officials found the shredded documents, he immediately called Leslie Ragon Caldwell, head of the federal task force conducting a criminal investigation of Enron. Caldwell told him, he said,
that the FBI would begin interviewing
Enron employees to determine what was shredded,
when and why.
Marks said that after the Securities and Exchange Commission began investigating the company in October, Enron employees worldwide were told not to destroy records. "Until [Monday], the company believed that process was working," he said.
The Enron attorney said the documents may have been unrelated to the company's collapse, and there may be "a completely innocent explanation" for the shredding.
"There will be an extensive investigation coordinated
under the auspices of the Justice Department," he said.
"The FBI was supposed to have a presence there to assess the situation, to look at the volume of what we're dealing with," said a Justice Department official late today. He said agents have not yet taken steps to secure documents because "we need to get a handle on what we're dealing with first."
The Enron shredding allegations, first disclosed by ABC News, were made by former Enron project manager Maureen Castenada. She said documents from all over the company were brought to the 19th floor, which housed accountants -- including some from outside auditor Arthur Andersen -- along with payroll operations and a risk management group.
William Lerach, an attorney for one group suing Enron officials and Andersen, brought a box overflowing with shredded paper to a hearing before U.S. District Judge Melinda Harmon. Visible on the shredded documents were references to two partnerships, Jedi II and Raptor, that are at the center of the widening investigations of Enron's collapse.
The judge is presiding over a string of lawsuits by shareholders and employees who lost billions of dollars as Enron's stock price dropped precipitously after disclosures that the company had overstated its profits for four years. The stock has stayed under $1 since the company filed for bankruptcy protection last month.
Lawyers for Duncan, the fired Enron auditor, had asked the House committee to postpone his scheduled Thursday appearance, saying he has not had time to review his records or Enron's work papers.
Duncan didn't want to appear, and though he is likely to invoke the Fifth Amendment, Johnson said, committee investigators think there are many questions he would be able to answer.
"Duncan provided a great deal of information to investigators, and we believe he can provide lots of answers without pleading the Fifth," Johnson said. "We want him to repeat as much as possible under oath."
Last week, SEC and Justice Department prosecutors had two lengthy interviews with Duncan concerning the document
destruction. He is cooperating with their probes, his attorney said.
Attorneys for Odom and Temple told the committee that they would welcome a subpoena because it would help shield them from lawsuits from their former client, Enron, Johnson said. Without a subpoena, they worried that Enron could sue them for disclosing confidential information about the company, he said.
He said Berardino's attorneys told him the Andersen chief executive would prefer to appear in a week or so, when Andersen has had more time to sift through the facts surrounding its relationship with Enron and the circumstances surrounding Andersen's
shredding of Enron-related documents.
But the committee feels comfortable compelling
Berardino or a knowledgeable surrogate to appear to at least brief the committee on what he and other top
Andersen officials know so far, Johnson said.
Johnson said some potential witnesses have asked the committee for immunity for their testimony, but it has not been offered. He said panel investigators are in daily contact with the Justice Department and that any offer of congressional immunity would have to be coordinated with federal prosecutors.
Congressional immunity has made the job of prosecutors more difficult in the past. Providing immunized testimony to Congress can help a witness later defend against criminal charges. Courts have ruled that prosecutors must show they had incriminating evidence before the witness disclosed it in an immunized setting.
Also today, one of the accounting industry's private-sector oversight authorities announced that it will disband in response to SEC Chairman Harvey L. Pitt's proposal, in the wake of Andersen's apparent role in the Enron collapse, to revamp regulation of the profession.
The members of the Public Oversight Board, which is funded by the accounting industry, decided to resign because it was clear Pitt's plans "do not include a place for the POB," board Chairman Charles A. Bowsher wrote in a letter to Pitt. The POB members also complained that Pitt didn't consult them.
Bowsher said in an interview that Pitt's plan was
little more than "rearranging the chairs on the deck."
He added, "It looks like he [Pitt] just really
was consulting the Big Five [accounting] firms
and the AICPA," a reference to the American
Institute of Certified Public Accountants.
Pitt wrote back urging the POB to reconsider.
Pitt said he intended "to strengthen the body
that will be our 'new' POB, insure its
independence from the AICPA and expand its mandate."
Staff writers Kathleen Day, David S. Hilzenrath and Ben White contributed to this report.
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