- The Washington Times - Wednesday, May 15, 2002

HOUSTON (AP) A former Arthur Andersen LLP partner said yesterday the likelihood of a Securities and Exchange Commission investigation prompted him to instruct his staff to comply with policies that led to the shredding of Enron Corp.-related documents.
David B. Duncan, who was Andersen's chief auditor on the energy trader's account, also testified that he huddled with superiors after an Enron vice president expressed concerns about some complicated transactions, but that the firm eventually accepted the word of Enron lawyers that everything appeared proper.
Mr. Duncan spent a second day on the stand in Andersen's obstruction-of-justice trial. The accounting firm is accused of destroying documents in advance of an anticipated SEC probe into Enron. Mr. Duncan pleaded guilty to the same charge April 9 and is cooperating with the government in exchange for lenience.
Mr. Duncan said he did not explicitly order the mass shredding and deleting that was carried out by the company's audit team, but he gave a reminder about Andersen's document-retention policy.
"I told them to not do anything more or less than follow the policy," said Mr. Duncan, Andersen's chief auditor on the energy trader's account.
Still, Mr. Duncan acknowledged implicitly directing document destruction, although he claimed being unaware that it was a federal crime.
With respect to Enron's questionable transactions, Mr. Duncan testified that he was included on a conference call in late August 2001, shortly after Enron Vice President Sherron Watkins confided to a friend at Andersen where she once worked about accounting problems on major transactions.
"I mentioned to [an Enron lawyer] we had been made aware of these allegations and were very interested in who at the company was aware and what the company's plan was to investigate and resolve these allegations," said Mr. Duncan, who recalled the conversation took place shortly after Mrs. Watkins talked to Andersen partner James Hecker in Houston.
Enron told Mr. Duncan the company would enlist Vinson & Elkins, its primary outside law firm, to investigate charges that Enron's "Raptor" special entities were in deep trouble. Andersen wanted the law firm's opinion before Enron's scheduled earnings release on Oct. 16, 2001, Mr. Duncan said.
"[Vinson & Elkins] concluded they didn't find any merit to the allegations, essentially," Mr. Duncan said.
The auditor said he had been interested in a snippet from the Vinson & Elkins report that Enron reputedly had guaranteed that a partnership called LJM, run by Enron's chief financial officer, Andrew Fastow, never would lose money if it dealt with the energy trader.
Former Chief Executive Officer Jeffrey Skilling has denied any such "handshake deal."
Mrs. Watkins, who remains at Enron, has been hailed as a hero by some for approaching former Chairman and Chief Executive Kenneth L. Lay and others about Enron's bookkeeping. Some of her concerns led to Enron's failure and bankruptcy filing Dec. 2.
Earlier witnesses have testified that Mr. Duncan went against advice from within the firm in early 2001 in allowing Enron to consolidate the four Raptors to try to hide losses by two of them. Andersen later determined the Raptors had to be treated separately.
Enron wound down the Raptors in the third quarter of last year, taking a major financial drubbing as its stock price continued to collapse.
If convicted, Andersen could face probation for five years and a fine of up to $500,000. It also could be fined up to twice any gains or damages and would be barred from auditing publicly traded companies likely putting the firm out of business.

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