Ex Andersen partner knew destruction of documents was illegal

Mark Babineck

Tuesday, May 14, 2002 | 11:02 a.m.

HOUSTON -- David B. Duncan, the former Arthur Andersen LLP auditor, hardly had settled into the witness chair before he implicated himself and his former employer in the shredding of Enron Corp. documents.

Duncan said Monday he knew he was breaking the law when he directed other employees to implement Andersen policies that resulted in the destruction of the papers.

"I obstructed justice," Duncan said. It was the first time the former chief auditor on the Enron account has spoken publicly about the energy company's downfall and his role in it.

Andersen is charged with obstruction of justice for destroying documents related to Enron. Andersen claims no one intentionally destroyed documents to keep them out of the hands of the federal investigators.

Duncan, 43, pleaded guilty last month to obstruction of justice in exchange for leniency in sentencing. He returned to the stand Tuesday.

Before the jury arrived, prosecutors and defense attorneys sparred over each side's conduct during the trial. Prosecutors complained defense attorney Rusty Hardin, a Texan for nearly 30 years, noted Monday that government lawyers hail from Brooklyn and Boston.

Hardin was upset by prosecutors repeatedly referring to Andersen's initial retention of a "big New York law firm" as its problems became apparent.

U.S. District Judge Melinda Harmon did not immediately rule on the government's request to muzzle Hardin's repeated off-hand comments.

Much of the testimony at the trial has touched on Andersen's little-known document retention policy, which calls for the retention of material considered important to projects and the destruction of drafts, extraneous or redundant documents or other items considered unnecessary.

"I instructed people on the (Enron audit) team to follow the document retention policy, which I knew would result in the destruction of documents," Duncan testified.

Andersen lawyer Nancy Temple sent a company e-mail Oct. 12 -- five days before the Securities and Exchange Commission opened an informal inquiry into Enron -- reminding workers of the policy.

And in an Oct. 26 e-mail, Andersen partner C.E. Andrews fretted that the firm could be "in the crosshairs" of the SEC if the regulatory panel decided to get tough on accounting firms. The message also discussed how to manage a worst-case scenario involving Andersen and federal regulators.

However, Andersen partners Amy Ripepi and James Green both testified earlier Monday that they did not think the reminders were designed to induce employees to destroy Enron-related materials.

Ripepi, head of Andersen's internal consulting arm, noted that the Andrews e-mail didn't specifically mention the energy trader. "I don't see what in these e-mails is about Enron," Ripepi said.

In addition to testifying about document destruction, Duncan was expected to shed light on the intricate financial web Houston-based Enron spun as it became one of the country's largest corporations, at least on paper, before declaring bankruptcy Dec. 2.

Andersen could face probation for five years and a fine of up to $500,000 if convicted. It also could be fined up to twice any gains or damages the court determines were caused by the firm's action and would be barred from auditing publicly traded companies -- likely putting the firm out of business.