- The Washington Times - Tuesday, April 16, 2002

The Justice Department will defer prosecuting Arthur Andersen LLP on obstruction charges in a settlement that requires the public admission that officials at Andersen headquarters knew employees were wrongfully destroying documents related to the collapse of Enron Corp., people familiar with the matter confirmed yesterday.

In the settlement, still being finalized, the Andersen accounting firm also must cooperate fully with government prosecutors investigating Enron's bankruptcy, these people told the Associated Press, speaking on the condition of anonymity.

The most significant provisions of what was described as a "global settlement" on the criminal charge already have been resolved, though some details were still being worked out. The sides expected to announce the deal tomorrow here in Washington, these people said.

The agreement could result in a deferral from prosecuting Andersen for as long as three years. Andersen's attorneys were uncomfortable with a deferral lasting that long, but the Justice Department was concerned that its investigation into possible wrongdoing at Enron isn't close yet to filing any criminal charges, people close to the negotiations said.

The agreement comes after weeks of intense, secret negotiations between the Justice Department and Andersen in the wake of the firm's criminal indictment unsealed March 14. Talks intensified after last week's plea agreement with David B. Duncan, the former senior Andersen auditor on the Enron account.

The grand jury accused the firm of destroying "tons of paper" at its offices worldwide and deleting enormous numbers of computer files on its Enron audits.

Duncan pleaded guilty April 9 to destroying documents relating to Enron's collapse and agreed to cooperate with government prosecutors. He remains free until his sentencing in August. Duncan is prohibited under his plea from discussing what he tells prosecutors, but he is considered knowledgeable about Enron's most controversial deals preceding its failure in December.

By agreeing to defer any criminal prosecution of Andersen for up to three years, the Justice Department can require Andersen as a corporation to cooperate in its investigation of Enron and promise not to violate any laws during that period, although it was not clear whether the government could compel cooperation from Andersen employees, who still could be indicted individually.

Andersen also likely would be required to show steps it will take internally to prevent any recurrence, such as updating its policies on destroying documents.

Duncan's defection last week was important "because it left Andersen with very limited options in terms of a viable defense," said Robert A. Mintz, a former U.S. prosecutor and expert on white-collar crime. "They had an opportunity to defend this case if they could have effectively circled the wagons and kept everybody on board, but once Duncan broke ranks, that defense was essentially gutted."

Meanwhile, on another front, Defense Secretary Donald H. Rumsfeld said he remained confident in Army Secretary Thomas White, despite a report in the Wall Street Journal that the FBI was investigating possible insider trading over his sale of Enron stock.

Citing lawyers close to the case, the Journal said FBI agents were interviewing Mr. White's friends and former colleagues to determine whether he sought insider information about Enron before selling the stock.

The FBI would have a hard time making an insider-trading case against Mr. White because he sold his Enron stock in the fall under a congressional deadline, former federal prosecutors said.

Mr. White, the highest-ranking former Enron executive in the Bush administration, has come under scrutiny because he sold more than half of his 405,710 shares in October at a time when Enron Corp. was in a death spiral and he was talking and meeting frequently with company executives.

While Mr. White has said the conversations were mostly personal, he has said he discussed the company's deteriorating finances in the calls, putting him in a position where he could have learned and acted on inside information.

The conversations with Enron Chairman Kenneth L. Lay and other top Enron officers were disclosed earlier this year, but news of the federal criminal investigation into possible insider trading came out yesterday in the Journal.

Mr. White was required to divest all of his Enron stock within 90 days under an ethics agreement with the Senate Armed Services Committee to gain confirmation in May. The initial deadline was pushed back 90 days to Oct. 30 under an extension obtained by Mr. White.

Distracted by the war in Afghanistan and hoping for a resurgence in the stock, which declined steadily last year from a high of about $90, Mr. White ended up selling the bulk of his shares Oct. 30 just ahead of the Senate deadline and one day before Enron disclosed a formal Securities and Exchange Commission investigation of its finances.

"From the little we know, it would appear to be a tough case to make criminally," said Gregory J. Wallance, a former federal prosecutor in New York.

Patrice Hill contributed to this report.


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