Enron files were destroyed after regulators sought them

Accounting firm fires auditor, disciplines seven other partners


WASHINGTON - Arthur Andersen, the accounting firm that approved Enron Corp.'s questionable bookkeeping practices, said yesterday that its auditors deleted e-mails and destroyed Enron documents last fall shortly after federal regulators requested financial data about the sinking energy company.

Andersen said it had fired the lead auditor on the Enron account, David B. Duncan, yesterday and that three other partners on the Enron account had been placed on administrative leave. In addition, four partners in Andersen's Houston office "have been relieved of their management responsibilities," Andersen said.

Meanwhile, federal and congressional investigators broadened their investigations into the collapse of Enron and of Andersen's role in Enron's financial dealings.

Enron, once the seventh-largest company in the country with political connections all the way to the White House, filed for bankruptcy protection last month, leaving more than 4,000 workers jobless, wiping out the retirement savings of thousands more and causing financial losses to tens of thousands of investors.

Treasury Secretary Paul H. O'Neill pledged yesterday that anyone at Enron who violated the law would be punished.

O'Neill said that the nation's free-market system can operate only if investors are given all the information they need to make sound decisions and government does its part to make sure that the rules are followed.

"In the Enron case, something clearly went awry," O'Neill said in a speech to the National Retail Federation. "The Justice Department is pursuing a criminal investigation. If anyone at Enron broke the rules, they will be punished."

Andersen described yesterday a rush to destroy records after an "urgent meeting" of Enron auditors that Duncan called Oct. 23, shortly after learning that Securities and Exchange Commission investigators had asked for Enron's financial accounting and reporting records.

"These activities were on such a scale and of such a nature as to remove any doubt that Andersen's policies and reasonable good judgment were violated," Andersen said in a statement.

The documents were ordered destroyed less than two weeks after an Andersen lawyer detailed the firm's document-shredding policy to its auditors.

October was a critical month for Enron. It was forced to disclose a $1.2 billion charge against stockholders' equity because company debts had been concealed in company-related partnerships.

Days later, the SEC announced its investigation into those partnership transactions and by month's end, Enron had "locked down" its 401(k) plan and prohibited employees from selling Enron shares out of their accounts.

Andersen received a subpoena from the SEC Nov. 8 seeking Enron documents, at which point Duncan's assistant e-mailed a plea to "stop the shredding." Andersen said it has recovered some documents from computer backup files.

Duncan, who turned over auditing documents to the House Energy and Commerce Committee, was scheduled to meet with committee investigators today at his lawyer's office in Washington.

"Now that he's been fired he should have more motivation to fully cooperate with us," committee spokesman Ken Johnson said.

In other developments yesterday, Sen. Paul S. Sarbanes, chairman of the Banking, Housing and Urban Affairs Committee, has asked the General Accounting Office to examine investments of employee retirement funds in company stock. The Maryland Democrat has scheduled a hearing for Feb. 12 on investor protections.

The ranking Republican on the committee is Sen. Phil Gramm of Texas, whose wife, Wendy, was a member of Enron's board of directors and of its audit committee.

Rep. Henry A. Waxman of California, the ranking Democrat on the House Committee on Government Reform, sent letters to Energy Secretary Spencer Abraham and the director of the Office of Management and Budget, Mitchell E. Daniels Jr., seeking details of any conversations they had with Kenneth L. Lay, Enron's chairman and chief executive officer.

The administration said yesterday that Lay spoke to Daniels in October to discuss an economic stimulus bill before Congress. The Energy Department said Abraham called Lay on Nov. 2 because he was worried about the impact Enron's precarious financial health might have on energy markets.

Waxman also released a video clip that he said shows Enron executives assuring employees in January last year that Enron stock would climb above $100 a share by year's end. As it turned out, the stock had peaked by then, at $90, and declined steadily after that.

While employees were being reassured, Enron directors and top executives were selling their stock, Waxman said.

The Associated Press contributed to this article.

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