- The Washington Times - Friday, March 15, 2002

A federal grand jury in Houston has indicted Arthur Andersen LLP on charges of obstructing a Justice Department investigation of Enron by destroying thousands of the energy giant's audit documents.
The first formal charges in the Enron case, announced yesterday, came after Andersen, Enron's longtime auditor until it disclosed the document-shredding in January, refused to plead guilty by a 9 a.m. deadline imposed by the department. The accounting firm faces a maximum $500,000 fine and five years' probation if convicted.
Andersen, whose viability is increasingly in doubt as its legal troubles have caused an exodus of major clients in recent weeks, has admitted that some of its Houston partners ordered the document destruction. But it says top managers were not involved.
The threat of bankruptcy and temporary disruption of financial markets resulting from the Andersen indictment prompted the Securities and Exchange Commission yesterday to announce emergency procedures to ensure the smooth filing of annual financial statements for more than 2,000 Andersen clients by the end of the month.
Andersen, with $9 billion in revenue last year, was once considered the most prestigious of the Big Five accounting firms. But the beleaguered auditor yesterday said it would not go down without a fight, contending that the charges against the firm, with 85,000 employees worldwide, are "baseless."
Andersen called the indictment an "extraordinary abuse of prosecutorial discretion" because the Justice Department violated its own policies and "fundamental fairness" by refusing the company's request to appear before the grand jury.
Deputy Attorney General Larry Thompson said Andersen's "wholesale destruction" of trunk-loads of documents relating to Enron audits "attacks the justice system itself by impeding investigators and regulators from getting at the truth."
The one-count indictment, handed up last week and kept under seal until yesterday, said that during a one-month period in October and early November, "Andersen … did knowingly, intentionally and corruptly persuade" employees to "alter, destroy, mutilate and conceal" Enron audit documents.
The indictment said Andersen employees "were instructed by Andersen partners and others to destroy immediately documentation relating to Enron, and told to work overtime if necessary to accomplish the destruction."
The shredding began after Andersen received an informal inquiry from the SEC about Enron accounting practices and continued until Andersen received an SEC subpoena Nov. 8.
The firm is scheduled for an initial court appearance March 20 before U.S. Magistrate Calvin Botley in Houston. The investigation is continuing, and additional charges are possible.
"Obstruction of justice is a grave matter and one that this department takes very seriously," said Mr. Thompson, dismissing Andersen's objection that the indictment could drive the firm out of business and make it impossible to provide restitution to Enron investors and employees.
"It shouldn't be a surprise to anyone that serious charges have serious consequences," he said. "It would be unfortunate for a criminal justice system if any individual or any entity could say that he or she or it was too big or too important … [to] be indicted."
Mr. Thompson said the destruction of evidence "extended far beyond Andersen's Houston-based Enron engagement team." He said company officials instructed employees in Chicago, London and Portland, Ore., to join in the shredding.
The indictment said Andersen employees destroyed "tons of paper" and that a shredder at the firm's Houston office was used "virtually constantly" to handle documents from dozens of large trunks filled with Enron documents. The indictment called the destruction an "unparalleled initiative to shred physical documentation and delete computer files."
Andersen said many of the discarded documents were subsequently retrieved and that the department has no evidence that any "could have materially advanced a governmental inquiry."
"None of the destruction occurred with the knowledge, much less the consent, of senior firm management," it said in a statement. "The department's action ignores the fact that Andersen discovered these activities and brought them to the attention of the Department of Justice and has cooperated fully with the investigation."
In the temporary procedures announced by the SEC yesterday, Andersen is permitted to continue auditing the financial statements of its clients as long as it can vouch for their quality and integrity.
If the firm is unable to live up to those standards, the SEC said some clients will be allowed to file their yearly statements without auditor approval, as long as they obtain another accounting firm's opinion within 60 days.
"We have an obligation to protect investors," said commission Chairman Harvey Pitt, maintaining that the measures are necessary "to assure a continuing and orderly flow of information to investors and the U.S. capital markets."
"Any effects of the indictment are expected to be temporary," he said.
Separately, the Department of Labor yesterday appointed an independent administrator, State Street Bank and Trust of Boston, to oversee Enron's retirement plans.


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