Andersen trial to set the stage for main event

Evidence likely to preview U.S. case against Enron

May 06, 2002|By Marego Athans | Marego Athans,SUN NATIONAL STAFF

Today begins Act I in the prosecution of Enron.

No, the bankrupt energy giant is not on trial -- not yet, anyway.

And no, the case is not about the notorious accounting schemes that led to the nation's largest-ever corporate bankruptcy, put thousands of people out of work and wiped out the savings of small investors across the country.

The case concerns the mass shredding of Enron-related documents and the deleting of e-mail by its accountants, Arthur Andersen. The once-revered but now foundering firm stands accused of a single felony count of obstruction of justice.

Despite the trial's narrow focus, the evidence that begins unfolding today in federal court in Houston is expected to preview the case against Enron.

"What the government will be doing is setting the stage for the main attraction, which is the Enron case," said Robert A. Mintz, a former federal prosecutor in Newark, N.J., who specializes in white-collar crime. "In part they will be identifying key players and defining the central theme of their prosecution. If that theme is rejected by the jury in the Andersen trial, it will make it difficult with Enron down the road."

For the 88-year-old accounting firm -- once the nation's fifth largest, now on life support with clients and partners fleeing and civil suits mounting -- a guilty verdict could be a death knell. The firm would be barred under federal law from auditing publicly held clients -- the core of its business -- unless it secured a waiver from the Securities and Exchange Commission. Even without a conviction, states could move to rescind Andersen's license.

The trial focuses on a relatively simple matter: whether Andersen's document destruction was widespread in the firm and intended to thwart an SEC investigation.

In that sense, it will be easier for the public to follow than possible future trials that involve more substantive matters such as derivative trading and "special purpose entities" created to disguise debt from regulators and corporate balance sheets -- subjects which give even business professors headaches.

Star witness

The government's star witness will be David Duncan, the former Andersen partner in the Houston office who was in charge of the Enron account. Duncan pleaded guilty to obstruction of justice last month and agreed to cooperate in return for a more lenient sentence. In other words, he must tell all on his former bosses and colleagues.

Duncan admitted in his plea that he ordered the destruction of documents to impede the government's investigation. Earlier, Duncan had attributed the decision largely to an Oct. 12 e-mail message from company attorney Nancy Temple reminding him of the firm's "documentation and retention" policy, which calls for the destruction of documents not central to an audit's conclusions. The policy was reportedly sporadically enforced.

Technically, the government needs to prove only that Duncan acted within the scope of his authority -- and acted for the benefit of the firm -- to prove Andersen is guilty of obstruction of justice.

But prosecutors are likely to cast a wider net and argue that the destruction was systemic within the company -- and happened with the knowledge and complicity of other senior partners. That strategy would avoid the prospect of a jury's ignoring the letter of the law in favor of fairness, reasoning that thousands of partners around the world should not be punished for the misdeeds of a few, Mintz said.

The indictment, which was returned by a grand jury in March, charges that document destruction was not isolated to Houston but took place at Andersen offices in such far-flung locations as Portland, Ore., and London.

Another key figure will be Temple, the Andersen attorney whose e-mail message Duncan said inspired him to begin shredding documents. Temple testified before Congress in January that she did nothing improper and that her e-mail was only a restatement of Andersen's existing policies, which call for work papers and preliminary audit information not central to the conclusions of an audit to be destroyed after the final audit report is completed.

"I never counseled any shredding or destruction of documents," she testified. "I only wish that someone would have raised the question."

Courtroom theatrics

For courtroom drama, the man to watch is Andersen defense attorney Rusty Hardin, a former Houston prosecutor with a North Carolina drawl and engaging smile who has become a celebrity for his searing cross-examinations, courtroom theatrics and high-profile clients, including former Houston Oilers quarterback Warren Moon and retired baseball star Wade Boggs.

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