- The Washington Times - Saturday, March 16, 2002

ASSOCIATED PRESS

The government yesterday suspended Enron Corp. and its former accounting firm, Arthur Andersen LLP, from entering into new federal contracts in a swift reaction to the first indictment in the Enron bankruptcy.

"To qualify as a responsible contractor, a company or individual must have a satisfactory record of integrity and business ethics," the General Services Administration said, explaining its decision.

Enron has some $35 million in contracts with federal agencies. Andersen's federal contracts are worth $60 million to $90 million, GSA General Counsel Raymond McKenna said.

Current contracts are not affected by the government suspension.

The move came a day after a federal court unsealed an indictment charging Andersen with obstructing justice by destroying thousands of documents and deleting computer files about its audit of Enron. It was the first indictment in a case that had rocked the White House and Congress and depleted the retirement savings of thousands of current and former Enron employees.

"Enron, its subsidiaries, certain former corporate officials and one former Andersen official have engaged in misconduct and caused internal-control irregularities that seriously impact their suitability to receive government contracts,'' the GSA said. "Andersen has been indicted under one criminal count of destruction of documents."

Spokesmen for Enron and Andersen didn't immediately return telephone calls seeking comment on the suspension.

At a news conference Thursday announcing the indictment, Deputy Attorney General Larry Thompson said Andersen had "sought to undermine our justice system by destroying evidence."

Over a monthlong span starting in mid-October, the eight-page indictment said, "an unparalleled initiative was undertaken to shred physical documentation and delete computer files. Tons of paper relating to the Enron audit were promptly shredded as part of the orchestrated document destruction."

Much of the shredding occurred after the Securities and Exchange Commission sought documents from Andersen in the civil investigation of Enron's accounting.

Prosecutors said the document destruction was much broader than Andersen had contended, with employees in Portland, Ore., its Chicago headquarters and London instructed to join in the shredding.

Andersen has sought to lay blame for the document destruction on its lead Enron auditor, David Duncan, and others in its Houston office. Mr. Duncan, who was fired by Andersen in January, is cooperating with investigators, said his attorney, Vince DiBlasi.

Andersen, now on the ropes as a string of its blue-chip corporate clients have dismissed it, said the criminal proceedings were tantamount to a "death penalty." The firm called the indictment "a gross abuse of government power."

The maximum penalty for obstruction of justice is a five-year term of probation and a $500,000 fine. But the worst potential penalty could be that Andersen would be barred from auditing and approving financial statements that companies file with the SEC, its core business.

Under the GSA suspension, Andersen is barred from doing new business with the federal government while the indictment is pending. Mr. Duncan also was suspended.

The GSA suspended for a period of one year Enron, its corporate entities, and several former officials, among them former Chairman Kenneth L. Lay, Jeffrey Skilling, former chief executive officer, and Andrew Fastow, ex-chief financial officer.

Andersen plans to move quickly to fight the indictment perhaps to ask a judge to dismiss it, attorneys for the firm said Thursday. They spoke in a conference call with reporters on condition of anonymity.

At the least, the attorneys said, Andersen intended to demand that the government spell out which employees it believed were responsible and what they did. The firm also may request the proceeding out of Houston. A court appearance in the case was scheduled for Wednesday.

Mr. Thompson said the investigation of Enron and Andersen was continuing. He held open the potential that a plea agreement still could be worked out with Andersen, which had rejected one Wednesday night.

"In my experience … pleas do result after an indictment has been brought by a grand jury," Mr. Thompson said.

Some legal analysts say the Justice Department could be using the indictment against Andersen to pressure the accounting firm to assist in the Enron investigation.

Accusations have been made of heavy document destruction at Enron's Houston headquarters.


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