Andersen Case Focuses on Intent
Defense attorneys called their final witness Monday in the Arthur Andersen trial, once again hammering at the theme that the accounting firm had no criminal intent when it shredded Enron Corp. audit documents.
The last witness, San Diego-based partner John Riley, testified he didn’t believe regulators’ informal inquiry of Enron would result in Andersen having to turn over its own paperwork. The testimony from Riley, the firm’s Securities and Exchange Commission expert, appeared to undermine a key prosecution point: that Andersen executives had a motive to shred because they feared SEC scrutiny.
But like several of the firm’s witnesses during its six-day defense case, Riley’s testimony appeared to cut several ways.
Riley testified that, during a visit to Andersen’s Houston office in October, he heard the whine of a shredder and expressed his concerns to David B. Duncan, Andersen’s lead partner on the Enron audit team.
“This wouldn’t be the best time in the world for you guys to be shredding a bunch of stuff,” Riley testified he told Duncan.
Riley said Duncan replied that only confidential client information was being destroyed as part of routine clean up. “It sounded like it was OK to me,” Riley said.
That aspect of his testimony appeared to support the prosecution’s contention that senior Andersen executives knew of the destruction at a time when they had an expectation that Andersen would be the subject of civil litigation, if not an SEC probe, for its role in Enron’s meltdown.
Andersen lead attorney Rusty Hardin said outside of court that the disclosure of the exchange with Duncan “doesn’t concern me.” He said Riley was simply sensitive to public perception. “He didn’t think anything was improper about shredding per se.”
Andersen is charged with one count of obstruction of justice for destroying documents and e-mails related to its Enron audit work.
Prosecutors are expected to continue their cross-examination of Riley today, and the case will likely go to the jury before the end of the week.
Prosecutors spent much of the last month trying to tell, in broad strokes, a tale of rising fears within Andersen that Enron’s collapse would trigger a regulatory inquiry and a court finding that the accounting firm had violated the terms of an agreement it entered to settle allegations of accounting fraud stemming from botched audits of Waste Management Inc.
Andersen suddenly began reminding executives of its document-retention policy in the fall, according to the prosecution theory, as a code to start destroying incriminating files.
Andersen’s defense team hasn’t so much told a story as it has hit on a set of themes that could weaken the underpinnings of the prosecution case. Even before Andersen presented its case-in-chief, Hardin at every turn has taken pains to point out that the potentially damaging Andersen notes, e-mails and memoranda introduced by prosecutors as evidence of the firm’s rising anxiety were all retained--not destroyed--by the firm and turned over to investigators under subpoena.
Moreover, Hardin has elicited testimony that many of the e-mails and files tossed out had no bearing on Enron at all but instead included fantasy football league rules and other personal items.
The volume of paperwork destroyed is irrelevant in determining whether a defendant broke the law. But the evidence presented by the firm is designed to show that Andersen lacked the criminal intent required in order for the jury to convict. During the last six days in court, the firm has presented witnesses who insisted they were not thinking about a possible SEC inquiry at the time they shredded Enron-related files.
Many of the witnesses had received instructions last October to comply with the firm’s document policy, but several offered sharply divergent interpretations of the rules, with some reading it as a message to save, not destroy, drafts and other papers deemed unnecessary for an audit.
Perhaps the biggest question still dogging the defense team is what prompted Andersen officials last October to suddenly begin promoting the internal document retention policy, which calls for the disposal of unwanted audit material.
Duncan, the government’s chief witness, testified that an Oct. 12 e-mail referencing the policy was part of what motivated him to order his subordinates, 11 days later, to comply with the policy--a move he said he knew would result in the destruction of some documents.
Prosecutors contend that an Andersen in-house attorney, Nancy Temple, sent the e-mail as a coded signal to start shredding files to thwart the SEC.
Andersen’s lawyers have hinted at a number of possible alternate motives. One Andersen witness, former Duncan assistant Shannon Adlong, testified that her boss told her the files needed to be organized because superiors from Chicago might be coming to weigh in on the emerging Enron crisis.
Under cross-examination from Assistant U.S. Atty. Samuel Buell on Monday, Adlong conceded that she had said in a civil deposition that the Oct. 12 e-mail was the reason. And Riley, under cross-examination, testified that Andersen’s senior executives had not yet begun discussing a visit to the Houston office on Oct. 23.
Andersen also has suggested that Temple sent the e-mail as a directive to the firm’s Enron auditors to properly document a series of disagreements they had with the firm’s internal accounting-standards group. But that doesn’t explain why partners in Houston sent similar instructions about the policy to Enron team members in Portland, Ore., and London.
On Monday, Hardin for the first time argued that the promotion of the policy wasn’t as unusual as prosecutors allege.
Hardin displayed two e-mails sent by Enron audit team staffer Melissa Durochez to other staffers in April and August last year reminding them that they needed to comply with the policy. It was the first introduction of such routine policy reminders since testimony began May 7. The e-mails show Durochez sent reminders to other staffers to meet the policy requirements after the first and second quarters of 2001.
Adlong didn’t receive the reminders.
