- The Washington Times - Thursday, April 4, 2002

Arthur Andersen's Chicago headquarters stood by while Enron Corp. and its Houston audit team overrode serious objections raised by one Andersen partner to Enron's Raptor deals, internal Andersen memos show.
The Raptor deals were at the center of the Enron scandal and came under a grand jury investigation in Houston last week. Disclosure that the off-book partnerships enabled Enron to hide more than $1 billion in losses forced Enron into bankruptcy Dec. 2 and precipitated dozens of lawsuits and investigations of Enron and its longtime auditor.
The nearly 100 pages of Andersen e-mail messages and internal memos released Tuesday by the House Energy and Commerce Committee shed light for the first time on Andersen's extensive involvement in the complicated hedge transactions.
The documents revealed that Andersen partners in Chicago and Houston engaged in a lively internal debate over the very tactics that made the deals questionable and finally overrode the objections raised by Houston partner Carl E. Bass, a member of Andersen's Professional Standards Group.
Mr. Bass appeared in the documents to be the only Andersen partner to state that the Raptor deals were created to make Enron's books look better and were hiding significant losses. He also questioned the conflicted role of Enron's chief financial officer, Andrew Fastow, who reaped $30 million at Enron's expense by creating the off-book partnerships.
"In effect, it was heads I win, tails you lose," Mr. Bass wrote in a March 2001 memo about Mr. Fastow's lucrative self-dealing. Mr. Bass reportedly is cooperating with the Justice Department investigation.
"This whole deal looks like there is no substance," Mr. Bass said in an earlier memo to his boss in Chicago, John E. Stewart, discussing a Raptor deal. "Both you and I have expressed some concern about the deal. The client's proposed accounting nonetheless was sustained."
The documents show that Andersen was aware that the deals were "aggressive" and posed "challenging" issues that required frequent review. The auditor's concern that Enron was hiding increasing losses under cover of the deals led to the company's devastating restatement of earnings Oct. 15.
But the documents also showed that other than Mr. Bass, most Andersen partners focused only on whether the deals technically complied with accounting guidelines rather than whether they hid important facts from investors. Auditors are required under the securities law to protect the interests of investors.
Early in Andersen's review of the Raptor deals, in December 1999, Mr. Stewart appeared to back Mr. Bass, saying the problems with the deals were "very clear."
Two months later, he urged Mr. Bass to restart discussions with the Enron audit team about the problems.
But Mr. Bass' objections raised hackles at Enron, and the documents showed he was taken off the case at the behest of Enron's chief accounting officer, Richard Causey, by the end of 2000.
Mr. Causey complained that Mr. Bass was being "caustic and cynical," though Mr. Bass said he never had any direct communication with the Enron financial officers.
Mr. Causey voiced his discomfort with Mr. Bass in a March 2001 telephone conversation with the company's lead auditor, David Duncan. Mr. Duncan, whom Andersen fired in January, saying he was principally to blame for the destruction of documents and other problems, sought unsuccessfully to have Mr. Bass transferred to Chicago, according to the documents.
The documents showed that Mr. Duncan, Debra Cash and two other Houston Enron auditors in their documentation of the Raptor deals said Mr. Bass agreed with their decision to approve Enron's accounting artifices.
When the deals sank in mid-2001, prompting Andersen to review the documents, Mr. Bass objected to the audit team's attempts to implicate him and insisted that they revise their documentation.
Mr. Bass said he was only a consultant on the deals, and Andersen's policy was to give the audit team the final say in the accounting treatment.
At different times, the documents appeared to provide backing both to Andersen's claim that only a few renegade partners in Houston and elsewhere were implicated in the Enron debacle, and the Justice Department's view that the entire Andersen firm was involved.
The department last month took the rare step of indicting the entire firm for obstructing a Securities and Exchange Commission investigation because Andersen shredded what it considered inessential correspondence on the Enron audit after it learned in October that the SEC was looking into the matter.

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