DUNCAN DOWN, DOZENS TO GO.....
nytimes.com
April 9, 2002
Guilty Plea Seen in the Shredding of Enron Records
By KURT EICHENWALD
David B. Duncan, the Arthur Andersen accountant whose destruction of records related to Enron (news/quote) led to a criminal indictment of the firm, has agreed to plead guilty to obstruction of justice and serve as a government witness, people involved in the case said yesterday.
The plea, to a single felony charge, is scheduled to be entered today in Federal District Court in Houston. Mr. Duncan, who until now has maintained his innocence, will plead to what is known as a criminal information, which will describe the offense. The terms of his agreement will be entered with the court at that time.
By pleading guilty, Mr. Duncan has the potential to transform the prosecution of Andersen, which was indicted last month on a charge of obstruction of justice because of the destruction of Enron documents. Since then, the firm has been struggling financially, underscored yesterday by the announcement that it planned to lay off 7,000 workers in the United States, and it began talks last week with prosecutors to resolve the case. But people involved in the case said yesterday that no deal had been reached.
The plea agreement with Mr. Duncan, which was reached Saturday, could also be a boon to federal prosecutors pursuing a criminal investigation of Enron. With Mr. Duncan's agreement to cooperate, the government now has its highest-ranking and most knowledgeable witness to the financial decisions that ultimately pushed Enron into filing for bankruptcy protection.
But the most immediate effect of Mr. Duncan's decision will be on Andersen. Since the firm was indicted, its strategy has been to hold Mr. Duncan close, maintaining that while records were destroyed, neither he nor the firm had any intent to commit a crime. Proving intent is essential for such a prosecution because without it, no crime occurred.
The strategic closeness of Mr. Duncan and Andersen was eventually made official, people involved in the case said, with the two sides entering into a joint defense agreement two weeks ago in their effort to combat the government.
Now, with Mr. Duncan ready to admit to a crime, Andersen's defense will have to become narrower, legal experts said, requiring it either to attack the truthfulness of his testimony or argue that the actions of a single partner should not be attributed to the entire firm.
Rusty Hardin, a lawyer for Andersen, declined to comment on the expected plea by Mr. Duncan.
Regardless of Andersen's strategy, the experts said, a decision by Mr. Duncan to plead guilty will be a setback to the firm's efforts to exonerate itself.
"It would be pretty damaging to Andersen if he entered a plea," said Efrem M. Grail, a partner at Reed Smith in Pittsburgh and a former state court prosecutor. "The government could well argue to the court that his actions should be attributed to the corporation. That is not first-year law school, but it is certainly second or third."
Moreover, legal experts said, Mr. Duncan's role in the events surrounding the document destruction, as well as his authority at the accounting firm, would make him the type of witness who is most difficult for a corporate defendant.
"The testimony of an insider is always the most devastating testimony against a corporation," said Stephen M. Ryan, a former federal prosecutor who is a partner at Manatt, Phelps & Phillips in Washington.
But Andersen faces several other challenges that make any effort to resolve the case without going to trial extremely difficult. Prosecutors have demanded that the firm either plead guilty or enter into some other agreement that includes an admission of criminal activity. But by doing so, the firm could set off problems for itself in the states, which have licensing and regulatory authority.
Indeed, several states have been affected, directly and indirectly, by the Enron debacle, including Arizona, Connecticut, Florida and Texas. Andersen was said to have expressed concerns about losing its ability to do business in those states if it reached an agreement that required it to admit wrongdoing.
With Mr. Duncan's decision to plead, the back-and-forth relationship between him and the firm — from allies to enemies and back again — is likely to have at least one more volley.
In the fall, Mr. Duncan was flying high, as an honored partner handling Enron — one of Andersen's most prestigious and lucrative clients, bringing in more than $50 million in annual fees. But by January, when Andersen learned of document destruction that took place in the fall, Mr. Duncan was dismissed and publicly criticized. That relationship switched again after the firm was indicted last month as the potential willingness of Mr. Duncan to plead guilty became an important piece on the strategic chessboard of Andersen's lawyers.
The indictment of Andersen says that the illegal destruction of documents began Oct. 10. At that point, according to information obtained in an Andersen investigation and from civil depositions of other Andersen employees, Mr. Duncan appears to have had little involvement in any destruction that took place.
Legal experts have said that the initial days covered by the criminal charge may be the weakest part of the indictment because there was little destruction and no notice to Andersen employees that there was a government inquiry.
However, in his role as the chief accountant in charge of the Enron account, Mr. Duncan would be able to testify about discussions and meetings that took place in Houston and in conference calls where firm executives reminded the team working on Enron about Andersen's policies requiring the destruction of certain documents.
An e-mail message was sent by a firm lawyer on Oct. 12, issuing a reminder about the policy. Such reminders would be legal unless they were given with the intent of impeding an investigation.
Legal experts have said that the evidence for the government's case grows stronger after Oct. 19, the day Andersen first learned that the Securities and Exchange Commission had opened an informal inquiry into Enron. By that point, Enron had disclosed huge losses for the third quarter and other financial problems that stemmed from transactions with a series of partnerships controlled by Andrew S. Fastow, then its chief financial officer.
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