Tags: Former | Andersen | Partner: | Shredders | 'Understood' | What

Former Andersen Partner: Shredders 'Understood' What to Do

Tuesday, 14 May 2002 12:00 AM

In his second day on the witness stand, David Duncan described the events leading up to the shredding of Enron documents, the actions that are the basis of a federal charge of obstruction of justice against Andersen, the chief auditor for Enron.

Duncan, 43, was in charge of the Andersen office at Enron headquarters in Houston where most of the destruction of documents allegedly began Oct. 23. He had learned the Securities and Exchange Commission was about to begin an investigation of Enron's accounting practices.

Duncan said he called a "floor meeting," which was very unusual, to inform his staff that they should comply with Andersen's document-retention policy. Prosecutors allege that was a code for workers to begin destroying critical Enron records.

Prosecutor Andrew Weissmann asked Duncan if he talked about destroying documents.

"No, I believe that they generally understood," he said.

Duncan said he never directly told any of his staff to destroy the records.

"I saw people cleaning out their office areas, and I saw people shredding documents," he said.

The Andersen document-retention policy called for the retention of important company documents but the destruction of extraneous records, he said.

Duncan, the government's star witness, pleaded guilty to obstruction of justice April 9 and agreed to testify against Andersen. During his testimony Tuesday, he said he didn't realize he was doing anything wrong when the shredding began.

"At the time I thought this was all legal," he said.

Duncan said it wasn't until he received a subpoena from the government after the collapse of Enron that he realized that laws might have been violated. Enron filed for Chapter 11 protection in December in the nation's largest bankruptcy.

Earlier Tuesday, Duncan explained the organizational structure of Andersen, once the fourth-largest accounting firm in the nation, and then detailed the Chicago firm's accounting work for Enron.

In the fall of 2001, Duncan said there were discussions within Andersen about whether to report hedging transactions called Raptors separately or as one group. Enron would benefit from treating them as one unit because it would reduce their losses, he testified.

Duncan said it was very important to try to decide the issue before that quarter ended because it would create the third straight quarter with accounting errors. "It would raise the scrutiny of review by outsiders," he said.

Prosecutors are trying to show that in the fall of 2001 Andersen officials felt like they were on probation because of recent problems the SEC had uncovered with their audits at two other Andersen clients: Waste Management Inc. and Sunbeam.

Andersen agreed in June 2001 to pay a $7 million fine to the SEC for overstating the financial health of Waste Management, although not admitting any wrongdoing. In May of the same year, the firm agreed to pay more than $110 million to settle a suit for allegedly allowing Sunbeam to file false financial reports.

Duncan took the witness stand for the first time Monday and admitted as he did April 9 in his arraignment that he had obstructed justice.

"I obstructed justice," he said. "I instructed people on the team to follow the document-retention policy, which I knew would result in the destruction of documents."

Prosecutors allege Andersen began shredding "tons" of documents Oct. 23 of last year when it was informed that the SEC was beginning an investigation of Enron's accounting practices.

If convicted, Andersen could be fined up to $500,000 or put on probation, which could mean restitution, a moratorium on certain types of business or other restrictions.

Since the Enron bankruptcy last December, Anderson has lost more than 200 clients and laid off 7,000 of its 26,000 employees.

Copyright 2002 by United Press International.

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In his second day on the witness stand, David Duncan described the events leading up to the shredding of Enron documents, the actions that are the basis of a federal charge of obstruction of justice against Andersen, the chief auditor for Enron. Duncan, 43, was in charge...
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2002-00-14
Tuesday, 14 May 2002 12:00 AM
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