- The Washington Times - Friday, May 24, 2002

AUSTIN, Texas (AP) The state's accounting board filed a motion yesterday to revoke Arthur Andersen LLP's accounting license in Texas because of its role in Enron Corp.'s collapse, the board's executive director said.

The Texas State Board of Public Accountancy also is asking for at least $1 million in fines and penalties.

The accountancy board reached its decision after a six-month investigation and is asking for a hearing on the recommendation before the State Office of Administrative Hearings. A date has not been set.

Andersen spokesman Patrick Dorton did not immediately return a call for comment.

The move is significant because Texas is an important market for Andersen, and because it could prompt state accounting boards throughout the country to consider similar efforts, said Arthur Bowman, editor of Bowman's Accounting Report.

"They can jerk a license, they can suspend a practice, they can mandate education," Mr. Bowman said. "If they jerk their license, they wouldn't be able to do business, and Houston was and still is a huge practice for this firm."

The last time a state accounting board recommended banning a firm from doing audits was in 1990, when California recommended the sanction for Ernst & Young over charges that it portrayed the failed Lincoln Savings and Loan as profitable.

But the accounting giant settled the case in 1991 paying a $1.5 million fine, placing an auditor on probation for three years and providing training classes for its California auditors.

Ernst & Young also agreed to pay Arizona $1.6 million to settle accusations the firm helped Lincoln executive Charles Keating Jr. deceive the government about the health of the company. Arizona's state accounting board suspended the license of a former Ernst & Young partner for four years.

Chicago-based Andersen has acknowledged that its Houston office shredded documents related to Enron audits last fall. The shredding came about the same time as federal regulators began investigating reported accounting improprieties.

Andersen is on trial in Houston for destroying documents related to Enron audits. Enron, based in Houston, declared bankruptcy Dec. 2.

Meanwhile, the head of Andersen's internal investigative unit testified in a Houston courtroom yesterday that he wasn't told documents were being shredded when he went to the firm's Houston office in late October to look into accounting problems at Enron.

"It would have been nice to know," David Stulb said in his second day of testimony.

Mr. Stulb had been sent in to review Andersen's audit of the energy trader. His testimony followed his description Wednesday of an Oct. 31 meeting with Andersen's lead Enron auditor, David Duncan.

He said he stopped Mr. Duncan from discarding a printed copy of a potentially damaging e-mail describing "smoking guns" in the case.

Picking up again yesterday, Mr. Stulb testified he was unaware Mr. Duncan had already told his staff to carry out Andersen's document-retention policy, which called for destruction of documents not needed for final audit work papers.

He said he only learned of the shredding in January, when Andersen publicly acknowledged it.

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