Andersen FreeFall, Part 3
nytimes.com
March 18, 2002
Andersen Misread Depths of the Government's Anger
(Page 3 of 3)
In other offices, the same cleanup was under way. On Oct. 23, Houston partners called the head of the London office. Shortly afterward, instructions went out in London to destroy unnecessary documents.
The same message was sent by voice mail to a manager in the Portland, Ore., office, which had also done work on Enron. The next day, the manager sent e-mail to Houston to let the partners there know that he had destroyed his Enron records.
By Oct. 26, shredding in Houston was brisk. In three days, 26 trunks of documents, as well as 24 boxes, were shredded — compared with less than one trunk's worth being shredded in each of the prior three weeks. Simultaneously, there was a threefold increase in the volume of e-mail deletions.
The shredding finally ended on Nov. 9, when Mr. Duncan was notified that Andersen had received an S.E.C. subpoena. Mr. Duncan told his secretary to let everyone know. She sent out an e-mail notice quickly, telling employees to stop the shredding.
In the weeks that followed, Enron spiraled into bankruptcy, and prosecutors opened a criminal inquiry. By that time, Andersen officials in Chicago had learned of the full scope of what had happened in Houston during the fall, and they began an internal inquiry.
When Ms. Adlong spoke with Mr. Duncan before his Jan. 15 dismissal, he said he wished that he had never received the Oct. 12 e-mail message about complying with the document policy. Without it, he said, nothing would have happened.
Andersen disclosed the document destruction on Jan. 10. Mr. Luna, the facilities manager, sought out D. Stephen Goddard Jr., the managing partner in Houston, to recount everything he had heard back in October. Mr. Goddard listened, saying nothing until Mr. Luna finished.
`I don't know," Mr. Goddard finally said, seeming to answer a question that had not been asked.
Then he left the room.
Shredding in Earnest
At the Justice Department, the pressure to show quick results in the Enron case started in January, soon after the appointment of a special task force. Senior officials and even the director of the Federal Bureau of Investigation were pushing. In most complex corporate fraud investigations, involving millions of documents, such a demand would be impossible to meet. But word of the possible obstruction of justice at Andersen gave prosecutors a manageable case.
With demands from Andersen to resolve the matter soon, everything moved quickly. A Houston grand jury was empaneled, with streamlined procedures.
Instead of hearing from dozens of witnesses, the grand jury would get much of the detail from F.B.I. agents.
In February, prosecutors met with Andersen's lawyers and executives. Repeatedly, Andersen portrayed the events as limited, caused by a handful of Houston executives acting without Chicago's knowledge. The Andersen lawyers disputed the contention that any crimes had occurred, but they felt confident that if prosecutors disagreed, only individuals would face indictment.
But Andersen failed to see that the task force was turning against it, becoming convinced that the firm was a recidivist. Just a quick background check had uncovered recent accounting frauds at a number of Andersen clients, including Colonial Realty in Connecticut, the Sunbeam Corporation (news/quote) and even a nonprofit organization, the Baptist Foundation of Arizona. In those cases, investors and others who believed records certified by Andersen lost tens, if not hundreds, of millions of dollars. In each case, regulators and law enforcement officials had developed evidence that Andersen was, in part, responsible for the financial disasters.
Capping it all off was Waste Management. In that case, Andersen had signed an agreement to avoid wrongdoing. Then came the document destruction.
As members of the Enron prosecutorial team discussed it, they decided that, given Andersen's record, they had no choice but to indict. They worried that if they gave it a pass, future injunctions in S.E.C. cases would be meaningless.
In early March, Andersen lawyers from Davis, Polk & Wardwell were flabbergasted to hear from prosecutors that the firm faced indictment in as little as a week. The lawyers argued that the case had no merit and that there was no rational reason to charge the firm for the actions of a few. But prosecutors kept returning to Andersen's history, and the Waste Management case.
Late that week, the lawyers from Davis, Polk & Wardwell stepped aside in the negotiations, replaced by a team from Mayer, Brown, Rowe & Maw. The new lawyers wanted more time, implying that the deadline needed to be stretched; incredulous, the prosecutors refused.
The prosecutors pushed Andersen to plead guilty. If the firm did not agree to do so by 9 a.m. on March 14, the charges, already filed and under seal, would be opened. As far as Andersen's lawyers were concerned, that deal carried the death penalty as punishment. Under securities rules, Andersen would then no longer be able to represent public companies in America.
Andersen pushed for a government assurance that the rule would be waived but did not get a satisfactory answer. Angered, its lawyers asked Larry Thompson, the deputy attorney general, to intervene. Mr. Thompson refused, sending the lawyers back to Michael Chertoff, the chief of the criminal division.
"The demand for a plea left us in a Catch- 22 position," one member of the legal team said. "Without an assurance of a waiver, we were committing suicide. Getting indicted had a lower risk."
Sometime after 7 on the evening of March 13 — a little more than 12 hours before the deadline ran out — Richard J. Favretto, a lawyer for Andersen, telephoned the task force chief with news that there would be no plea. If the government wanted a conviction, it would have to come at trial.
The next afternoon, after the close of the financial markets, Mr. Thompson appeared with Mr. Chertoff and other members of the prosecutorial team to announce the indictment. Within minutes, Andersen fired back, accusing the prosecutors of "a gross abuse of government power."
The first hearing of a case that was supposed to have been resolved quickly will take place in a Houston courtroom on Wednesday. Absent a resolution, one side stands to lose far more than a verdict.
[[Ed.: Sayonara Artie, good riddance. ]] |
