WASHINGTON (AP) - Enron Corp. fired accounting firm Arthur Andersen on Thursday amid growing evidence that its auditors had serious questions about Enron's financial practices but did nothing to correct them.
``We're very troubled about the destruction of the documents, and we're very concerned about the accounting advice we got,'' said Washington attorney Robert Bennett, who is representing Enron.
Bennett said Enron informed Andersen of the dismissal late Thursday afternoon. Joseph Berardino, Andersen chief executive officer, acknowledged Enron's decision. ``Obviously Enron has not rehired us,'' he said.
The firing came as congressional investigators pressed the accounting firm for more documents concerning Enron's business activities.
The House Energy and Commerce Committee released documents from Andersen showing that nearly a year ago the accounting firm had strong misgivings about Enron's use of partnerships that kept hundreds of millions of dollars in losses off Enron's balance sheet.
During a high-level meeting in early February, Andersen executives expressed concern about Enron's off-the-books accounting of profits from its partnerships, especially one headed by Andy Fastow, at the time also Enron's chief financial officer.
Summarizing the meeting, Andersen accountant Michael Jones wrote in an e-mail that the discussions ``focused on Fastow's conflicts of interest ... and the amount of earnings Fastow receives'' from the partnership while also Enron's financial officer.
Another document obtained by House investigators disclosed that last August Andersen officials were told that by Enron whistle-blower Sherron Watkins of her serious concerns about the off-the-books deals at Enron.
However, Andersen decided to continue to serve Enron. It estimated in its February meeting that fees from the energy company could reach $100 million a year and that the risks posed by Enron's business practices could be managed.
In a letter Thursday to Andersen chief executive Joseph Berardino, congressional investigators demanded all documents related to the meeting of Feb. 6, 2001.
A memo to David Duncan, Andersen's chief auditor on the Enron account, said the accounting firm should further investigate whether the Securities and Exchange Commission (news - web sites) would go along with the Enron partnership arrangement. Duncan has told House investigators that no such investigation was done.
The Enron partnerships were key to the energy company's downward spiral that ended in bankruptcy on Dec. 2.
Enron on Nov. 8 acknowledged to the SEC that it had overstated its profits by $586 million as it shielded losses in partnerships, including the one headed by Fastow.
The chairman of the Securities and Exchange Commission, which is investigating Enron and Andersen's role in its complex accounting, declined any comment on the inquiry Thursday at a news conference where he announced a proposed new private-sector body to regulate the accounting profession.
Chairman Harvey Pitt did say that in general, the SEC will reserve its harshest punishment ``for anyone who lies or obstructs (an SEC) inquiry.''
If anyone were found to have lied or destroyed documents, ``then we turn the full wrath of the (SEC's) enforcement powers against those individuals,'' Pitt said.
Sanctions normally would include civil fines and sanctions. Unlike the Justice Department (news - web sites), the SEC does not have the power to put wrongdoers in jail.
Duncan told investigators with the House Energy and Commerce Committee that in September general discussions began at Andersen of what Enron-related documents to discard, and that the Big Five accounting firm's lawyers suddenly began emphasizing Andersen's policy allowing destruction of some documents.
Duncan told the investigators it was unusual to emphasize the document-destruction policy, according to congressional sources familiar with what he said. The sources spoke on condition of anonymity.
An Andersen spokesman declined comment.
According to the sources, Duncan told investigators that an Oct. 12 memo from one of Andersen's lawyers was the beginning of an effort to discard many records.
Andersen has said Duncan organized a two-week document destruction effort that began in late October. The accounting firm fired Duncan on Tuesday, put three other Enron auditors on administrative leave and stripped management responsibilities from four partners in its office in Houston, where Enron is based.
At the White House, spokesman Ari Fleischer (news - web sites) said President Bush (news - web sites)'s chief economic adviser, Larry Lindsey, was asked to study the impact of an Enron collapse after presidential aides were alerted to the problem last fall. He concluded late last year that Enron's collapse would not hurt U.S. and global financial markets. That's the same finding reached by Peter Fisher, the Treasury undersecretary in charge of financial markets who opened a review after two phone calls from Lay to Treasury Secretary Paul O'Neill on Oct. 28 and Nov. 8.
Lindsey, a former member of the Federal Reserve (news - web sites) Board of Governors and a private economic consultant at the time, received $50,000 from Enron in 2000 as a member of an Enron advisory board,
Enron has been Bush's biggest campaign benefactor over the years.
In another development Wednesday, it was disclosed that Enron executive Sherron Watkins told a friend and former colleague at Andersen on Aug. 20 that she had concerns about Enron's accounting practices. It was revealed this week that Watkins warned Enron's chairman, Kenneth Lay, about her concerns, which focused on outside partnerships used by Enron executives to keep hundreds of millions of dollars in debt off the company's books.
A hurried meeting at Andersen's Houston office took place Aug. 21 and Duncan participated. The meeting occurred the day before Watkins detailed her serious concerns in a meeting with Lay.
``It's now clear to us that key players at Andersen as well as Enron knew of the growing problems months before the company imploded,'' said Ken Johnson, spokesman for the House Energy and Commerce Committee.
Duncan ``cooperated fully with our investigators,'' Johnson said. ``He answered all of our questions.''
Rep. James Greenwood, R-Pa., chairman of the panel's investigations subcommittee, revealed that the Andersen employee Watkins spoke to on Aug. 20 summarized their conversation.
``This document raises additional concerns about Andersen's knowledge of potential accounting irregularities and the subsequent destruction of Enron-related documents,'' Greenwood said.
After Watkins' phone call to her former colleague at Andersen on Aug. 20, the accounting firm notified Enron's general counsel and were told that the law firm Vinson & Elkins was conducting an investigation.
``We're still looking into the facts here,'' said Dorton, the Andersen spokesman. ``We don't know what additional steps were taken'' by the accounting firm in response to the call from Watkins.
The accounting firm took out a full-page ad in major newspapers Wednesday seeking to assure the public that it would ``do what is right'' in the Enron investigation and promising to cooperate with government and congressional investigations.
In related developments:
-Rep. Henry Waxman, D-Calif., said in a letter to Vice President Dick Cheney (news - web sites) that Enron would have benefited from 17 provisions in Bush's national energy plan. ``This creates the unfortunate appearance that a large contributor received special access and obtained extraordinarily favorable results in the White House energy plan,'' he wrote.
Fleischer on Thursday dismissed Waxman's review as ``one more partisan waste of taxpayers' money.'' He also renewed White House refusal to release information about Cheney's contacts with Enron, saying: ``If Washington is going down the usual path of partisan fishing expeditions, I think they're going to lose the support of the public.''
Several Democrats in Congress and the private group Common Cause called for Pitt, a securities lawyer who once represented Andersen, to remove himself from the SEC's civil investigation of Enron's accounting and Andersen's role in it. |
