- The Washington Times - Friday, May 17, 2002

HOUSTON (AP) The former Arthur Andersen LLP partner who admitted to illegally destroying Enron Corp.-related documents acknowledged yesterday that he preserved several potentially embarrassing records.
David B. Duncan, who pleaded guilty to obstruction of justice charges April 9, told Andersen attorney Rusty Hardin in a second day of cross-examination at Andersen's obstruction trial that he made a point to keep records related to accusations made last August by Enron Vice President Sherron Watkins.
"I believe I retained [documents] relevant to the Watkins allegation matter in a separate folder," said Mr. Duncan, who then was presented with papers he identified as being from his Watkins file.
Among the documents was a memo from fellow Andersen partner James Hecker, who took a call from former co-worker Mrs. Watkins in August. In the call, she relayed her worries about Enron's questionable accounting of "Raptor" entities and rumors of secret side deals that might have jeopardized the veracity of Enron's previous financial statements.
The Hecker memo, which detailed his phone conversation with Mrs. Watkins, was titled "Smoking guns you can't extinguish." Mr. Duncan dismissed the title as his co-worker's sarcastic wit.
Also in the stack were copies of Mrs. Watkins' complaints, which she also shared with Enron Chairman and Chief Executive Kenneth Lay. A review by law firm Vinson & Elkins, concluded last October, dismissed many of Mrs. Watkins' concerns. Although many of the issues became flashpoints as investors lost confidence in the energy trader and it fell into bankruptcy in December.
"You kept in your files, undestroyed, Sherron Watkins' allegations?" Mr. Hardin asked.
After Mr. Duncan said he did, Mr. Hardin responded, "You must not have been worried about the [Securities and Exchange Commission] seeing it?"
Prosecutors immediately objected to Mr. Hardin's comment and their objection was sustained by U.S. District Judge Melinda Harmon, a sequence of events that has become routine when Mr. Hardin has the floor.
Mr. Duncan, who has been on the stand since Monday, is cooperating with prosecutors to obtain a light sentence for his own obstruction conviction.
He has testified he did not think asking employees to destroy extraneous Enron documents after the SEC announced an inquiry last October was illegal, but this year came to realize it was.
Andersen contends neither the firm nor Mr. Duncan broke any laws and that Mr. Duncan took the plea deal under threat of extensive prison time that essentially would leave his three young daughters fatherless.
In his questioning yesterday, Mr. Hardin also focused on the many important documents that survived, trying to show the jury there was no conspiracy to cover up Andersen's auditing work on Enron's books.
Earlier yesterday during a discussion of Enron accounting, Mr. Duncan said he disagreed with the Houston company's decision to do business with a partnership called LJM, which was run by Chief Financial Officer Andrew Fastow.
"We did not think it was a good idea but I think it was in the area of corporate governance [by Enron]" and it wasn't the auditing firm's place to interfere with business dealings, Mr. Duncan said. Enron's board signed off on the LJM deal in 1999. Mr. Duncan led Andersen's auditing work for Enron.
Mr. Fastow left Enron last year, taking what the company called a leave of absence.
His departure came amid the fallout over various related-party transactions, from which Mr. Fastow and a handful of others were found to have reaped huge profits at Enron's expense.


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