Federal Agents Probe Shredding Inside Enron
Federal agents opened an investigation Tuesday into the destruction of documents at Enron Corp. headquarters in Houston after company executives found a wastebasket full of shredded material in the company’s 19th-floor accounting offices.
The action came as President Bush for the first time expressed outrage that employees and shareholders had not known all the facts about the company’s precarious position.
“My own mother-in-law bought [Enron] stock . . . and it’s not worth anything now,” he said. “If she had known all the facts, I don’t know what her decision would have been . . . but she didn’t know all the facts. And a lot of shareholders didn’t know all the facts. And that’s wrong.”
Enron representatives disclosed Tuesday that they notified the Justice Department after finding the shredded material late Monday. The company searched the accounting offices after a former executive told news organizations she witnessed shredding as recently as the second week in January.
“There will be an extensive investigation done under the auspices of the Justice Department,” said Ken Marks, an attorney representing the company. He said there may be “completely innocent” explanations.
The Justice Department and FBI declined to comment. Bush administration officials, however, said they understood that FBI agents in Houston had gone to Enron headquarters.
Congressional investigators and the Securities and Exchange Commission said Tuesday that they will widen their probes into the Enron collapse to review the allegations of document shredding.
“We are including the most recent document-destruction issue within the scope of our investigation,” Stephen Cutler, SEC enforcement chief, said in an interview.
Rep. James C. Greenwood (R-Pa.), who chairs the House Energy and Commerce subcommittee on oversight and investigations, said his panel also plans to examine the shredding.
The president made his comments in response to reporters’ questions as he toured the Walker Machinery Co. plant in Belle, W.Va., during a day highlighting efforts to right the struggling economy. His remarks were among his most extensive on the unfolding Enron bankruptcy case and reflected both a political sensitivity and a personal anger about the course it is taking.
“If somebody has got an accusation about some wrongdoing, just let me know,” Bush said.
A deputy White House press secretary, Claire Buchan, said later that Jenna Welch, Laura Bush’s mother, lost more than $8,000 investing in Enron. She bought 200 shares of Enron stock Sept. 21, 1999, paying $40.99 a share. She sold them for 42 cents each Dec. 4, 2001, two days after Enron’s declaration of bankruptcy.
Asked whether the case was creating a negative impression of his policies, Bush said: “Our administration has done the exact right thing.”
The White House announced two weeks ago that Enron’s chairman, Kenneth L. Lay--a major donor to Bush’s gubernatorial and presidential campaigns--had contacted Treasury Secretary Paul H. O’Neill and Commerce Secretary Don Evans in October and November as his company’s position worsened.
“My Cabinet officers said, ‘No help here,’ ” Bush said.
“I’m absolutely confident the American people know that my administration has acted the right way,” he added.
He said the government must tackle the problems brought to the fore by Enron’s failure--particularly the way shareholders and employees were kept in the dark.
“Our government must do something about it, must make sure that the accounting practices that have been going on for quite awhile are addressed, make sure there’s full disclosure and the corporate governance issues are wide-open for everybody to understand,” he said.
“What I’m outraged about is that shareholders and employees didn’t know all the facts about Enron.”
Enron filed for Chapter 11 bankruptcy protection Dec. 2 on the heels of increasingly dire financial reports, including the fact that it overstated earnings dating back to 1997 by nearly $600 million.
On Tuesday, congressional investigators said they would subpoena the chief executive and other current and former executives with Andersen, Enron’s accounting firm, which previously acknowledged shredding documents.
The subpoenas signal a tougher stance by congressional investigators looking into the collapse of Enron, ranked in the Fortune 500 as the seventh-largest U.S. company.
“We want to know what documents were destroyed and who destroyed them,” Greenwood said, referring to the Andersen documents.
A committee spokesman, Ken Johnson, said a subpoena was necessary because fired partner David B. Duncan has indicated through his attorney that “in all likelihood,” he would invoke his 5th Amendment right against self-incrimination.
“We believe that he has important information,” Johnson said. “We are going to continue to insist on his appearance. Certainly, he provided some detailed information to our investigators last week, and we would like him to repeat his story under oath.”
Duncan’s attorney, Robert J. Giuffra Jr., said Tuesday night that he had not received a subpoena from the committee and had made no final decisions about Duncan’s testimony.
Greenwood said the committee would frown on any refusal by Duncan to answer questions under oath. He said Duncan’s attorney requested, but did not receive, immunity in exchange for his testimony.
“It certainly puts him in a bad light to profess his innocence and then all of a sudden plead the Fifth,” Greenwood said. He said the committee might respond by seeking a resolution to find Duncan in contempt of Congress, which carries a $100,000 fine.
In addition to Duncan, Johnson said subpoenas would be served today on Andersen Chief Executive Joseph F. Berardino, attorney Nancy Temple and risk manager Michael C. Odom.
Andersen spokesman Patrick Dorton said the CEO had not received a subpoena but has told the committee that he would testify.
“It’s a question of when,” Dorton said.
But Johnson said: “Mr. Berardino found the time to make his case before the public last week on ‘Meet the Press.’ We believe it’s important that he find the time to make the same case before Congress as well.”
Johnson said the committee was sending “friendly subpoenas” to Temple and Odom.
“Both of them have agreed to appear before the committee and cooperate with our investigation,” Johnson said. “They have confidentiality concerns and would welcome the protection provided by a subpoena.”
Greenwood’s panel is trying to determine whether Enron or Andersen officials destroyed evidence in an effort to obstruct investigations.
At a hearing Thursday, members of Congress are expected to push current and former Andersen employees to account for discrepancies in their explanations for why thousands of documents related to Enron were destroyed last fall, even after it was disclosed that the SEC was investigating the energy giant.
Duncan, who was fired by the accounting firm for allegedly orchestrating the destruction, has told congressional investigators he was following orders from Andersen’s legal department.
He said Andersen’s Houston office received an “unusual” Oct. 12 e-mail from Temple, reminding employees about the firm’s policy regarding the destruction and retention of documents.
Temple and Andersen have insisted that the e-mail was a routine “reminder” and should not have been interpreted as an instruction to delete files.
The document destruction by Andersen apparently ended after Duncan’s assistant sent a “stop the shredding” e-mail Nov. 9, the day after Andersen received an SEC subpoena.
The shredding of documents by Andersen was already a key issue in the investigation when it was disclosed that documents had apparently also been destroyed by Enron.
William Lerach, one of the many attorneys who have filed lawsuits against Enron’s officers and directors, said Tuesday that the wastebasket of destroyed documents found late Monday suggests “they were shredding documents over there yesterday.”
Lerach brought a big box of shredded Enron documents to display in federal court Tuesday. He and other lawyers are seeking a ruling to prevent further destruction of documents by Enron and Andersen, but no ruling was immediately issued.
Lerach got the ribbons of paper from Maureen Castaneda, an Enron executive laid off Jan. 14. In television interviews, Castaneda said she had taken the box of shreds home to use as packing material and then realized its significance.
“It was clearly accounting documents,” Castaneda said on CNBC, saying she noticed such words as “Jedi” and “Chewco,” both of which are the names for Enron partnerships at the center of the scandal.
Mark Palmer, a spokesman for Enron, said: “We invited [the FBI] to come to the building. We thought it was more appropriate for the FBI to conduct an investigation than for the plaintiff’s attorney to do so.”
On Oct. 22, the SEC began a formal inquiry into the company’s accounting practices. Three days later, Enron sent a series of four e-mails to employees about preserving documents, which said that the company’s “normal document destruction policies are suspended immediately” and that employees should retain all documents related to LJM and LJM2, two of its controversial partnerships.
The next day, the company specifically mentioned that any documents related to its broadband services division should be saved. On Oct. 31, the scope again was widened to many other deals, and employees were told that company lawyers would be collecting all sorts of documents for possible production in litigation, including “accounting for any Enron investments.”
Marks, the Enron lawyer, said employees “were allowed in ordinary course of business to discard business records that were not related to the issue in this case.”
On Jan. 14, an e-mail was sent to remind employees that “no company records, either in electronic or paper form, should be destroyed.”
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Streitfeld reported from Houston and Gerstenzang from Washington. Times staff writers Richard Simon, Edmund Sanders and Eric Lichtblau in Washington, Walter Hamilton in Los Angeles and Lee Romney in Houston contributed to this report.
For background and previous Times articles about Enron, go to latimes.com/enron.
