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Friday, March 15, 2002

The obstruction consisted of the widespread destruction of documents, mainly in Houston but also in Chicago, Portland, Ore., and London, the indictment said.

A Frenzy of Shredding

According to the indictment, the destruction was so massive that the company's shredders could barely keep up.

Contrary to previous Andersen assertions, the destruction was not limited to low-level employees, Deputy Attorney General Larry Thompson told reporters.

"Dozens of large trucks and boxes were brought in" by Andersen to Enron's Houston office to cart away documents for shredding, Thompson said. " ... The obstruction was not confined to a few isolated individuals or documents."

The indictment was returned by a federal grand jury in Houston last week and unsealed Thursday.

Although only the Andersen partnership was charged, Thompson would not rule out eventually charging individuals.

Nor would he rule out an eventual plea bargain. "That's not an uncommon experience" after an indictment, Thompson said.

Andersen, with headquarters in Chicago but offices all over the world, is one of the "Big Five" U.S. accounting firms.

"The action taken against Arthur Andersen by the U.S. Department of Justice ... is without precedent and an extraordinary abuse of prosecutorial discretion," the company said in a statement released Thursday. "A criminal prosecution against the entire firm for obstruction of justice is both factually and legally baseless."

Firm Charges Abuse of Power

The firm also described the case as a "gross abuse of government power."

Enron has its headquarters in Houston, and before its bankruptcy was considered the seventh-largest corporation in the United States. The company had evolved from a regional gas provider to a trader of all types of energy and commodities, according to the indictment.

Andersen performed accounting services for Enron, and even kept office space inside Enron's Houston headquarters, earning tens of millions of dollars in annual fees.

On Oct. 16, however, Enron announced that its third-quarter losses were $618 million. Though it did not say so publicly, the company reduced shareholder equity, the value of its stock, by $1.2 billion that same day, the indictment said.

The next day, the Securities and Exchange Commission announced an investigation into Enron.

The indictment charged that the $1.2 billion reduction in equity was caused by Andersen and Enron previously categorizing hundreds of millions of dollars as an increase, rather than a decrease in the company's cash flow.

The indictment said Andersen was put on direct notice of possible fraud and other Enron improprieties by company whistle-blower Sherron Watkins. Watkins was worried that the company's use of off-books "special-purpose entities" was enabling Enron to hide its true financial picture, according to the indictment.

Moreover, the indictment said, Andersen's team conducting an Enron audit did not follow the approved accounting methodology set up by Andersen's own specialists.

'Wholesale Destruction of Documents'

The indictment said on Oct. 19, Enron alerted Andersen of the SEC inquiry. On Oct. 23, "Andersen partners assigned to the Enron management team launched ... a wholesale destruction of documents at Andersen's offices in Houston," the indictment added.

"Instead of being advised to preserve documentation so as to assist Enron and the SEC, Andersen employees ... were instructed by Andersen partners and others to destroy immediately documentation relating to Enron, and told to work overtime if necessary to accomplish the destruction," the indictment said.

The shredding involved "tons of paper," according to the indictment, and the destruction spread to Chicago, Portland and London.

The massive shredding stopped, according to the indictment, only when the SEC served Andersen with a subpoena Nov. 8.

Copyright 2002 by United Press International.

All rights reserved.

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