- The Washington Times - Tuesday, June 4, 2002

HOUSTON (AP) An Arthur Andersen LLP partner and former federal regulator said yesterday that he heard a shredder running when he was in Houston to look into troublesome Enron Corp. accounting and advised the firm's then-top Enron auditor against destroying documents.
"I remarked, 'What's that noise? You guys have a shredder up here?'" Andersen audit practice director John Riley said he asked then-chief auditor David Duncan on Oct. 25 at the team's Enron offices.
Mr. Riley testified at Andersen's obstruction of justice trial that Mr. Duncan, who pleaded guilty April 9 to illegal shredding, told him the team had a shredder for routine destruction of confidential client information.
"My response was to him: 'Well, this wouldn't be the best time in the world for you guys to be shredding a bunch of stuff,'" Mr. Riley testified.
He was the final defense witness to testify.
Prosecutors expected to present a short rebuttal case before both sides made closing arguments and sent the case to the jury for deliberations. Conviction could get Andersen probation for five years and as much to $500,000 in fines. The firm could also be fined as much as twice any gains or damages the court determined were caused by its action and would be barred from auditing publicly traded companies.
Mr. Riley, a former investigator in the Securities and Exchange Commission's division of corporation finance who had worked for Andersen since 1995, said he typically intervened when clients' accounting methods could get the SEC's attention.
He said he heard the shredder two days after Mr. Duncan told the team to comply with Andersen's document-retention policy.
The policy calls for the retention of final work papers that support audit conclusions and the destruction of extraneous documents.
Mr. Riley said he didn't know the SEC had told Enron on Oct. 17 that it had opened an informal inquiry into the company's finances.
But he advised the audit committee of Enron's board of directors Nov. 5 that auditors had determined that Enron's accounting problems forced the need for a restatement and that Enron had to announce it publicly. The energy giant announced Nov. 8 that $586 million in profits from 1997 through the first half of 2001 would be wiped out.
That evening, the SEC issued a subpoena to Andersen, and the next day Mr. Duncan's secretary, Shannon Adlong, sent an urgent e-mail to other secretaries on the audit team that said, "Stop the shredding."
The firm is charged with obstruction for shredding documents and deleting e-mails related to the energy company's audits as the SEC began investigating Enron's complicated accounting practices.
Miss Adlong, 32, testified yesterday that Mr. Duncan reluctantly sifted through his files last year after telling his staff to comply with the policy.
"He was acting like he had to do this," she said of Mr. Duncan's demeanor when Enron auditors stepped up shredding efforts in October.
Miss Adlong, who cried on the stand Friday when recalling Mr. Duncan's abrupt firing in January, gave short, emotionless and sometimes hostile answers yesterday under cross-examination by prosecutor Sam Buell.
He pressed her about telling FBI agents in an interview in February that in October she had heard someone say that the Enron team had better "get its ducks in a row" because someone from outside Andersen might be interested in the files.
Miss Adlong insisted she meant that people from outside Andersen's Houston office might be interested in the files, such as executives at the firm's Chicago headquarters.
"I can't remember exactly everything I said to everyone I've talked to about this," she snapped.
Mr. Buell wanted to challenge her memory lapses by introducing her 200-page deposition for an Enron-related civil lawsuit. U.S. District Judge Melinda Harmon allowed him to introduce some sections.
Miss Adlong also said she hadn't heard of the policy before Mr. Duncan received a reminder about it in an e-mail written Oct. 12 by in-house Andersen attorney Nancy Temple in Chicago.


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