Enron Hearings Open, Focusing on Destroyed Papers
The New York Times
January 25, 2002
By RICHARD A. OPPEL Jr. and STEPHEN
LABATON
W ASHINGTON, Jan. 24 -
Lawmakers investigating the
Enron Corporation said
today that new evidence showed that
the company's auditors, Arthur
Andersen, destroyed documents
knowing that they might be relevant to
criminal and civil investigations.
At a hearing this morning before a House subcommittee examining the collapse of
Enron, lawmakers heard evidence that two weeks before Andersen executives in
Houston began destroying documents the accounting firm retained a law firm to
prepare to defend itself in cases that could arise from Enron's problems.
A document released by lawmakers also shows that on the same day the law firm
was hired,Oct. 9, some Andersen officials were worried that there was a
"heightened risk of financial statement fraud" with Enron's books.
In addition, the subcommittee released copies of an e-mail message received by
Andersen employees a day after government regulators announced their
investigation of Enron. Lawmakers said employees construed the message as a
directive to begin destroying records.
David B. Duncan, an Andersen partner until he was fired after acknowledging that
he took part in destruction of records, declined to respond to questions from House
lawmakers, invoking his Fifth Amendment right against forced self-incrimination.
The hearings brought together many elements of
American political and economic life: the partisan battle
over the proper role of government regulation, the
bursting of the financial bubble of the 1990's and the
quarrel over the influence of money in politics.
And the sessions were yet another indication of the
mounting impact on Washington of Enron's collapse, the
largest corporate bankruptcy in history. Even as the White
House spokesman, Ari Fleischer, argued that the
company's collapse was a corporate scandal, not a political
one, its political effects were visible in Congress and at the
White House.
Controversy over large political contributions from Enron
helped House members fighting to overhaul the nation's
campaign finance laws to move their legislation closer to a
floor vote, with Mr. Fleischer saying a Bush veto was
unlikely. All the attention focused on the millions donated
by Enron to members of the two parties has intensified
the pressure on Mr. Bush and other political leaders to
back change.
There were other signs of how Enron's fortunes had
intersected with politics. Associates of Karl Rove, Mr.
Bush's top political adviser, said he had recommended a
lucrative consulting contract with Enron for Ralph Reed,
the Republican strategist, as Mr. Bush was weighing
whether to run for president. The associates said the
arrangement helped keep Mr. Reed's allegiance to the
Bush campaign without putting him on any payroll.
A new computer analysis of campaign finance records
showed that of the 248 senators and House members on
the 11 Congressional committees that are investigating
the Enron affair, 212 had received contributions from
Enron or Arthur Andersen. The donations from the two
companies have been so pervasive that all the Senate's top
20 recipients of Enron donations are serving on at least
one panel investigating Enron. Because many lawmakers
who accepted Enron donations were Democrats, the
burgeoning scandal has created bipartisan discomfort.
Among those testifying today was Arthur Levitt, the former
chairman of the Securities and Exchange Commission,
who had tried with limited success to impose tough
conflict-of- interest restraints on the accounting industry.
"Too many elements of the system are not trustworthy
today," Mr. Levitt told the Senate Governmental Affairs
Committee. "They have failed us because of self-dealing
and self- interest."
The House and Senate committees conducting today's
hearings include members who had beaten back earlier
proposals for tougher conflict-of- interest rules for auditors
and who had supported legislation in the 1990's that
made it harder for investors to sue unethical accountants
and easier for corporations to put out misleading financial
projections.
Mr. Levitt proposed a number of changes to eliminate the
possible conflicts of interests of Wall Street analysts and
accountants and make corporate boards more
independent- minded. He also suggested the adoption of a
new rule that required companies to change auditors
every five to seven years "to ensure that fresh and
skeptical eyes are always looking at the numbers."
He also suggested that the recent proposals by his
successor at the agency, Harvey L. Pitt, were weak. Mr.
Pitt, whose proposals have come under heavy criticism
since they were announced last week, has proposed that a
group dominated by outside experts should discipline the
accounting industry.
Some lawmakers, including members who had received
donations from Enron and the accounting industry, said
the collapse demonstrated the need for changing
campaign finance laws.
"Because Enron has made substantial political
contributions to members of Congress and the executive
branch, some will question the independence in
launching such an investigation," said Senator Joseph I.
Lieberman, the Connecticut Democrat who heads the
Governmental Affairs Committee. "There are two things we
in Congress can do to overcome that skepticism and
rebuild public trust: conduct completely independent
investigations of Enron and pass campaign finance
reform."
The committee's ranking Republican, Senator Fred
Thompson of Tennessee, agreed.
"We have an opportunity to do some good here on a
bipartisan basis," Mr. Thompson said as he outlined issues
raised by the scandal. "In the process, we may even finally
decide that allowing huge amounts of soft money contributions to public officials is
not such a good idea.""
In the House hearing, Representative Billy Tauzin, the Louisiana Republican who
heads the the Energy and Commerce Committee, which will hold a hearing on Feb.
6 focusing on Enron, said "scores and scores" of Andersen employees were engaged
in document destruction.
"It's clear to us that our investigation, and other investigations, have been impeded
by this policy," he said.
The ranking Democrat on the committee, Representative John D. Dingell of
Michigan, said Andersen's actions were "either criminally stupid, or stupidly
criminal or both."
Lawmakers said it appeared plain that senior Andersen officials were aware by
early October, when the firm hired the law firm of Davis Polk & Wardwell, that
lawsuits were possible, yet they did nothing to ensure that crucial documents were
preserved, waiting until receiving a subpoena on Nov. 8 to instruct employees to
"stop the shredding."
This was a major mistake, lawmakers said, and it contradicted recent comments by
Andersen's chief executive, Joseph F. Berardino, who said Sunday on "Meet the
Press" on NBC that Andersen's policy was "not to shred documents, not to
eliminate documents if you have a reasonable basis to anticipate an investigation."
This morning, the first witness, Mr. Duncan, strode to the hearing table flanked by
his two lawyers, Robert Giuffra and Vince DiBlasi. Wearing a dark blue suit, Mr.
Duncan, 42, rose and was sworn under oath, but he invoked his Fifth Amendment
right against self-incrimination, and he was dismissed by the subcommittee
chairman, Representative James C. Greenwood, Republican of Pennsylvania.
Mr. Greenwood said he was frustrated by Mr. Duncan's refusal to testify and told
him: "Enron robbed the bank. Arthur Andersen provided the getaway car, and they
say you were at the wheel." But speaking with reporters later, Mr. Greenwood said
he remained concerned that "Mr. Duncan and others were the fall guys" for a firm
that sanctioned document destruction when they knew litigation was likely.
Andersen officials at the hearing said Mr. Duncan orchestrated the shredding
without direction from superiors, and a firm spokesman, Patrick Dorton, played
down the timing of the hiring of the outside law firm. "It would not be unusual for
this firm or any company to seek the advice of outside counsel in a situation like
this," Mr. Dorton said.
An Andersen spokesman dismissed the document that discussed the risk of
"financial statement fraud," saying it stemmed from an experimental computer
model Andersen was using that often registered false results.
In a statement after the hearing, Andersen said that it had "deep regret for the
disturbing actions of several of its employees on the Enron engagement" but that
the testimony "further demonstrates the firm's complete resolve to learn the facts,
make them known to the government and the public, and take every appropriate
action against the individuals involved."
Four Andersen officials testified today, but the committee saved its sharpest
questioning for Nancy Temple, a lawyer in the firm's Chicago office who by early
October was working closely with Andersen partners in Houston who were
reviewing what they viewed as Enron's increasingly troubled accounting.
On Oct. 12, Ms. Temple had sent to auditors in Houston a copy of e-mail showing
the firm's document-retention policy, which some lawmakers said amounted to a
green light to destroy documents. Mr. Duncan and other Andersen officials
interviewed by the committee's investigators have called her e-mail unusual.
Lawmakers also were critical that notes she took during an Oct. 23 conference call
with Mr. Duncan and other partners involved with the Enron account did not
indicate that preserving documents was mentioned. Her notes read, in part: "AA
trying to gather all docs re transaction from around the world."
"And those notes don't say anything about preservation, do they?" Representative
Diana DeGette, Democrat of Colorado, asked.
Ms. Temple also drew the ire of the subcommittee when she characterized as
"positive" an October report by Enron's outside law firm, Vinson & Elkins, on
Enron's accounting.
Mr. Tauzin told her: "We're trying to get the facts here. But if you will characterize
a report that indicates a decline in the value of Enron's stock and a serious risk of
adverse publicity and litigation as a positive report from the attorneys, we are going
to have trouble with your testimony
today."http://www.nytimes.com/2002/01/25/business/25ENRO.html?pagewanted=all |
