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Fear of probe drove Andersen to shred papers, prosecutor says
HOUSTON - Partners at Arthur Andersen "realized the law was coming" when they decided last fall to shred Enron-related documents, a federal prosecutor said yesterday before testimony began in the accounting firm's obstruction of justice trial.
Assistant U.S. Attorney Matt Friedrich told jurors in his opening statement that Andersen had paid a $7 million fine a year earlier to settle allegations of wrongdoing in an unrelated case and that was enough motive to destroy documents and computer files related to Enron's complicated web of financing.
Friedrich cited notes by an Andersen attorney in early October that warned a government investigation of Enron was "highly probable."
The accounting firm has pleaded innocent to a single count of obstruction. Its attorneys have insisted Andersen did not authorize the destruction of information related to the government investigation.
A conviction could be the final blow to Andersen, which has lost clients, partners and employees in the Enron fallout.
The case also is being watched closely because the government's likely star witness - former Andersen auditor David B. Duncan, who was in charge of the Enron account - could reveal details on the complicated partnerships that led to Enron's controversial bankruptcy filing in December.
Defense attorney Rusty Hardin said Andersen was simply following a "document retention policy" and should have been shredding needless files for months. At one point, he held up for jurors a thick stack of papers.
"These are e-mails and documents that reflect differences" between the Chicago headquarters and the Houston audit team over Enron, he said. "If these documents showed internal arguments ... wouldn't you expect those to be destroyed?"
Hardin labeled the government's case a "rush to judgment" to find Andersen officials who, according to the indictment, "corruptly persuaded" others to wipe out documents.
But prosecutors suggested Andersen was still hurting from a $7 million fine paid to settle Securities and Exchange Commission allegations that Andersen had issued false and misleading reports on behalf of Waste Management Inc.
"Those [Andersen] partners realized the law was coming and those partners made a simple series of choices, which is what this case is all about," Friedrich said.
The first witness, SEC investigator Thomas Newkirk, was called to bolster that argument. He said accounting firms that repeatedly violate SEC rules can be barred from auditing public companies.
"In cases of recidivism, the commission has said it will deal more harshly with people who are repeat offenders," Newkirk said.
U.S. District Judge Melinda Harmon ruled yesterday that prosecutors can introduce evidence of similar SEC allegations regarding the firm's audit work for Sunbeam Corp. Last year, Andersen agreed to pay $110 million to Sunbeam shareholders to settle a fraud lawsuit alleging the firm helped the appliance maker inflate profits in 1997-1998.
The trial is expected to last at least three weeks.
If convicted, Andersen could face up to a $500,000 fine and five years of probation. However, it could also be fined up to twice any gains or damages the court determines were caused by the firm's action.