Search the Internet          Tips  Sites: Finance, Investment

Andersen charged for shredding Enron documents

A federal grand jury has indicted accounting firm Andersen for obstruction of justice tied to probes of Enron Corp's collapse, federal officials announced on Thursday, prompting Andersen to say its business was damaged but it had no plans for bankruptcy.

The US Justice Department said Andersen was indicted in connection with the destruction of tons of documents and computer files sought in probes of fallen energy trading giant Enron, the center of a storm of controversy since it filed the largest bankruptcy in US history on December 2.

Deputy Attorney General Larry Thompson said the indictment included allegations of widespread criminal conduct by Andersen, charging the firm sought to undermine the justice system by destroying evidence relevant to investigators.

"Dozens of large trunks were brought in to haul documents from Andersen's office and Enron's building to Andersen's firm office in Houston in order to destroy literally tons of documents," Thompson told a news conference.

The indictment alleged that Andersen partners and others, at urgent and mandatory meetings, told employees to immediately destroy documents on Enron, a top campaign contributor to President George W Bush and others in Washington.

Chicago-based Andersen, which had been Enron's auditor until January, blasted the prosecution of the firm by the government as "a gross abuse of government power."

Confirming business damage from client defections, Andersen spokesman Charlie Leonard said that, as of Wednesday, the firm had lost about two per cent of its annual US revenues. "I would be the first to acknowledge that we're looking at a significant hit," Leonard said on a conference call.

But, he added, "There is no plan for bankruptcy. We're affirmatively moving forward with our business in the US."

Sources close to the firm said Andersen lawyers would likely move quickly to fight the government prosecution, possibly moving for a rapid dismissal of the charge.

Andersen rivals Deloitte Touche Tohmatsu and Ernst & Young on Wednesday ended merger talks with Andersen, citing its legal troubles. "I can't believe another firm would be interested in them at this point," Paul Brown, chairman of accounting at New York University's Stern School of Business, said.

The Justice Department alleged that Andersen partners began a plan for the wholesale destruction of documents just days after Enron alerted the auditor on October 19 that the US Securities and Exchange Commission had begun an inquiry into special partnerships created by the energy firm.

On October 16, Enron had reported its first quarterly loss in more than four years and took $1 billion in charges on the poorly performing partnerships.

SHREDDER RAN CONSTANTLY

"Employees were told to work overtime if necessary to finish the job of destroying documents. The shredder at the Andersen office and Enron building ran virtually constantly," Thompson said.

The indictment "alleges that, at the firm's direction, Andersen personnel engaged in the wholesale destruction of tons of paperwork and attempted to purge huge volumes of electronic data or information," Thompson said.

According to the indictment, the destruction effort had spread far beyond Andersen's Houston office.

"In addition to shredding and deleting documents in Houston, Texas, instructions were given to Andersen personnel working on Enron audit matters in Portland, Oregon; Chicago, Illinois; and London, England to make sure Enron documents were destroyed there as well," according to the indictment.

Thompson said the records were destroyed in late October and early November, at a time when Andersen knew they were relevant to federal inquiries into Enron's collapse.

Justice Department officials said no individual Andersen employees were charged, but that the investigation continued.

The indictment was obtained last week from a federal grand jury in Houston, Texas, but was kept under seal until Thursday while the Justice Department tried unsuccessfully to reach a plea agreement with Andersen in which the company would admit guilt.

The maximum penalty for the charges is a $500,000 fine and five years on probation. But Andersen, which has seen major customers defect after the Enron collapse, has warned that a criminal indictment would put the company in "grave jeopardy".

Thompson said, "These are serious charges. It shouldn't be a surprise to anyone that serious charges have serious consequences."

ANDERSEN SAYS INDICTMENT IS BASELESS

In a statement, Andersen said, "A criminal prosecution against the entire firm for obstruction of justice is both factually and legally baseless."

It said that none of the document destruction "occurred with the knowledge, much less the consent, of senior firm management."

"Moreover, the department has not suggested that any of the discarded documents -- many of which have been retrieved -- actually contained any incriminating information that could have materially advanced a governmental inquiry," it said.

A Justice Department spokesman said Andersen's initial appearance in court will be on Wednesday before a federal magistrate in Houston.

Enron on December 2 made the largest bankruptcy filing in US history amid a steady stream of revelations about questionable accounting methods and extensive off-the-books partnerships, which concealed billions of dollars in debt and led to a $600 million reduction in four years' worth of earnings.

At a Senate Banking Committee hearing, Connecticut Democratic Sen Chris Dodd said, "I am very concerned. I think there's a real possibility of Arthur Andersen going bankrupt."

James Castellano, chairman of the American Institute of Certified Public Accountants, said the indictment of Andersen was unprecedented in the 110-year history of the accounting profession.

"While it must be said that these allegations remain to be proved, this profession has zero tolerance for any members who break the law," he said in a statement.

Lawrence Mitchell, a Georgetown University law professor, told Reuters," This is the beginning of what appears to be the corporate equivalent of a capital murder case for Andersen, and if you are a defendant in a capital murder case you fight as far as you can go."

ALSO READ:
The Enron Saga
The Rediff Budget Special
Money

Tell us what you think of this report