- The Washington Times - Thursday, January 17, 2002

Senior auditors at Arthur Andersen & Co., one of whom later ordered the destruction of Enron Corp. accounting documents, were told in August at a hastily called "emergency meeting" that Enron was in imminent danger of collapsing, congressional investigators said yesterday.
The Andersen auditors, including David B. Duncan, fired over his Oct. 23 order to destroy thousands of Enron e-mails and paper documents, were advised of the firm's shaky financial condition at the Aug. 21 meeting at the accounting firm's offices in Houston.
Mr. Duncan learned of Enron's deteriorating financial condition from James A. Hecker, an Andersen auditor who had been contacted a day earlier by Enron Vice President Sherron Watkins, investigators said.
Mr. Hecker and Mrs. Watkins are friends and former co-workers.
Mrs. Watkins already had tried to warn Enron Chairman Kenneth L. Lay that the firm could "implode" because of its accounting practices.
"I realize that we have had a lot of smart people looking at this and a lot of accountants including AA&Co.; [Arthur Andersen & Co.] have blessed the accounting treatment. None of that will protect Enron if these transactions are ever disclosed in the bright light of day," Mrs. Watkins wrote in an Aug. 15 memo.
At the Aug. 21 Houston meeting, called by Mr. Hecker, the Andersen officials decided to consult with the accounting firm's legal department on what actions to take, investigators said.
Mr. Duncan was grilled about Andersen's destruction of the Enron records yesterday for more than four hours by a bipartisan group of eight House Energy and Commerce Committee investigators.
He was not under oath, although he was warned against giving false testimony. There was no discussion of immunity.
"It's now clear to us that key players at Andersen as well as Enron knew of the growing financial problems months before the company imploded," said Ken Johnson, spokesman for the House Energy and Commerce Committee. "We are satisfied that Mr. Duncan answered our questions and gave us valuable information that will help solve this growing controversy.
He cooperated fully with our investigators," Mr. Johnson said, adding that committee investigators will be in Houston today and tomorrow interviewing Enron officials and securing additional documents.
Mr. Hecker, following his conversation with Mrs. Watkins, wrote a memo to an Andersen in-house file indicating that "based on our discussion, she appeared to have some good questions," investigators said. The memo listed as "bullets" several specific concerns Mrs. Watkins had over Enron's ongoing accounting problems.
Despite the warnings issued by Mrs. Watkins and the Aug. 21 meeting, it is not known what the 89-year-old accounting firm did, if anything, to correct the situation or to inform federal investigators.
"This document raises additional concerns about Andersen's knowledge of potential accounting irregularities and the subsequent destruction of Enron-related documents," said Rep. James C. Greenwood, Pennsylvania Republican and chairman of the House panel's oversight and investigations subcommittee.
"We intend to request additional information from Andersen about this memorandum and the discussions that were held among its senior management team at that time," he said.
Mrs. Watkins, in warning Mr. Lay about accounting problems, urged him to seek an independent law firm and accounting company to investigate her concerns.
Instead, Mr. Lay gave the job to Enron's outside counsel, Vinson & Elkins, which said the Enron accounting methods were "creative and aggressive," but that "no one has reason to believe it is inappropriate from a technical standpoint." The law firm concluded that the facts it found during "an intensive review" did not support an outside investigation.
The Enron document destruction began Oct. 23 and continued through Nov. 9, when Mr. Duncan's assistant e-mailed secretaries to "stop the shredding." That message came after Andersen had received a federal subpoena for Enron documents.
In addition to his questioning by House committee investigators, Mr. Duncan also has talked with Justice Department lawyers and officials from the Securities and Exchange Commission.
"Mr. Duncan is cooperating with all investigations of this matter. He properly followed the instructions of an Andersen in-house lawyer in handling documents," said a statement by Sullivan and Cromwell, the law firm representing Mr. Duncan. The statement did not elaborate.
Three other Andersen partners were placed on administrative leave and four other managers were demoted after the shredding incident in what the accounting firm said was a "message" to its employees that it was "not going to tolerate anything less than the highest standards."
Thousands of Enron documents concerning the company's financial situation are believed to have been destroyed, although Andersen has not explained what specific records were lost.
Last week, the Justice Department began a criminal investigation of Enron to determine whether company executives including Mr. Lay illegally blocked employees from selling billions of dollars in plummeting shares from their retirement accounts. The probe also has focused on accusations that executives cashed out their stock while hiding massive losses.
The firm filed for bankruptcy protection Dec. 2, less than four months after Mrs. Watkins' warnings. It was the largest corporate bankruptcy in U.S. history. In addition to the SEC probe, the company also is being investigated by the Labor Department and at least eight congressional committees.
Enron has admitted overstating its annual profits by nearly $600 million and improperly keeping more than $1 billion in debt off its books since 1997. The Andersen firm endorsed Enron's financial statements.
In related matters:
The former chief of staff for Sen. Joseph I. Lieberman, chairman of the Senate Governmental Affairs Committee, which also is investigating Enron, tried unsuccessfully last year to arrange a meeting between the Connecticut Democrat and Mr. Lay. Mr. Lieberman's spokesman, Dan Gerstein, said he did not know what Mr. Lay wanted, but did not believe the matter would have any impact on the committee's pending investigation.
Sen. Patrick J. Leahy, Vermont Democrat and chairman of the Senate Judiciary Committee, questioned Andersen's work on reorganizations at the Justice Department and FBI. In a letter to Deputy Attorney General Larry Thompson, Mr. Leahy urged caution to prevent conflicts of interest between Andersen's work at the department and the agency's investigation of Enron.
Mr. Leahy said he was concerned the department was taking "appropriate steps" to guarantee the $700,000 reorganization efforts and the Enron investigation "do not taint each other."
Mr. Thompson said the Andersen officials helping in the review are from the firm's management consulting division, which is separate from its accounting section. He said the department would "do everything possible to avoid any kind of appearance of impropriety or inappropriateness."
Several congressional Democrats and Common Cause called for SEC Chairman Harvey Pitt a securities lawyer who used to represent Andersen to remove himself from the probe. White House spokesman Ari Fleischer said President Bush "has full faith and confidence" Mr. Pitt "will do the right things for the right reasons and will comply with all ethics provisions."

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