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Strategies & Market Trends : VOLTAIRE'S PORCH-MODERATED -- Ignore unavailable to you. Want to Upgrade?

To: Cactus Jack who wrote (51414)	5/14/2002 6:16:44 PM
From: stockman_scott	Respond to of 65232

Duncan describes a frantic Andersen By Sarah A. Klein Crain's Chicago Business May 14, 2002 HOUSTON—In a calm and collected manner, David B. Duncan, the star witness in the government's case against Chicago-based Andersen, described the frenzied atmosphere at the accounting firm in the fall of 2001 as its leaders debated the proper treatment of Enron Corp.'s off-balance sheet entities. Andersen's accountants were rushing to find a way to address Enron's special-purpose entities without necessitating a restatement of Enron's financial results. The work went on into the early morning of Oct. 16, the day the Houston-based energy trader issued a press release saying it would take a $1.01-billion charge against earnings to write off bad investments. The release also noted that Enron would report a $618-million loss for the third quarter, revealing the extent of its financial problems. Mr. Duncan said Andersen's accountants had been scrambling to come up with an alternative accounting method that would not require a restatement, an approach that would show the controversial off-balance sheet entities were "not going to be material." Although the Andersen team worked hard to test its formula before the Oct. 16 deadline, it could not complete its analysis in a way that would support it, Mr. Duncan testified Tuesday, the seventh day of Andersen's criminal trial on one count of obstructing justice. As a result, Enron chose to release financials for the most drastic scenario possible—the unwinding of the off-balance sheet entities. Enron filed for Chapter 11 bankruptcy protection Dec. 2. Intense discussion The draft of Enron's Oct. 16 press release sparked intense discussion within Andersen, including conference calls between top Andersen officials Lawrence Rieger, a senior partner, and in-house attorney Nancy Temple. Among the issues they debated was whether it was appropriate for Enron to describe its extraordinary charges as "nonrecurring." Mr. Duncan testified that he thought the term was misleading because the charges were based on core Enron businesses which were volatile and could require adjustments going forward. He testified that he told Richard Causey, Enron's chief accounting officer and an ex-Andersen employee, that the Securities and Exchange Commission takes a dim view of misrepresentations in press releases. Mr. Duncan summed up one of the conference calls in an Oct. 18 memo, which he forwarded to Ms. Temple. She sent him back an e-mail with a few suggestions: "I recommend deleting references to consultations with the legal group and deleting my name. Reference to consultation with the legal group arguably is a waiver of attorney-client privileged advice and if my name is mentioned, it increases the chances that I might be called as a witness, which I prefer to avoid." She also recommended removing any references to the discussion about nonrecurring charges as misleading as well as references of Mr. Duncan's warning to Mr. Causey. Mr. Duncan followed her advice, even taking her name off the list of Andersen employees carbon-copied on his Oct. 18 memo. The e-mail exchange bolsters the government's contention that Andersen employees sought to destroy evidence related to the collapse of Enron so they could minimize the firm's legal exposure. Mr. Duncan said he believed Ms. Temples' participation in the numerous Andersen conference calls was designed to ensure that the discussions were protected by attorney-client privilege. Ms. Temple has refused to testify in the ongoing trial, invoking her Fifth Amendment right against self-incrimination. Handshake deals Mr. Duncan also described his concerns upon learning of a letter from Enron Vice-president Sherron Watkins, the whistleblower who warned Enron could implode in a wave of accounting scandals. Her letter alleged that former Enron President and CEO Jeffrey Skilling had a handshake deal with Enron's Chief Financial Officer Andrew Fastow guaranteeing the partnerships Mr. Fastow controlled would never lose money. The letter also alleged the partnership was improperly structured. "Either of those two things would have destroyed the accounting treatment" that Andersen had recommended, Mr. Duncan testified. "It cast doubt about (the Enron managers who were) involved in that transaction." Outside the courthouse today, Andersen defense attorney Russell "Rusty" Hardin Jr., said he wasn't likely to cross-examine Mr. Duncan until Wednesday. He was polite in describing the ex-partner's testimony, saying "He is trying to tell the truth as best as he knows it." Mr. Duncan was scheduled to return to the witness stand this afternoon.