Justice Dept. Steps Up Andersen Investigation

Justice Department sources said Thursday that they were focusing increased attention on Enron Corp.’s former accounting firm, Andersen, and its admitted practice of shredding documents in connection with its audit of the energy company, which filed for bankruptcy protection in December.

Current and former Justice Department officials said that for the last six weeks they have been contemplating presenting a grand jury in Houston with a request for an indictment, but officials could not say Thursday if they had taken that action.

“Nothing is happening today,” said one official. “But something could be happening tomorrow.”

Andersen representatives have discussed the firm’s internal findings of document shredding at its Houston office with the Justice Department, other sources familiar with the investigation said.

Andersen fired the executive in charge of auditing Enron in January, saying partner David B. Duncan organized an effort at the Houston office to destroy thousands of documents after learning of a Securities and Exchange Commission inquiry. Duncan said he was following the directions of an attorney at Andersen’s Chicago headquarters. Andersen said the shredding ceased Nov. 9--the day after the firm received a subpoena from the SEC but nearly three weeks after the agency announced an inquiry into Enron’s dealings.

Robert Guiffra, an attorney for Duncan, declined to comment. Duncan has been cooperating with the Justice Department’s probe.

Justice Department spokesman Bryan Sierra said he could not discuss the Enron-Andersen case, including whether any enforcement actions were pending. Andersen also would not comment.

One senior Justice Department official who recently left the department said an indictment of Andersen executives for destruction of documents has been a point of serious discussion for six weeks.

“I’ve been hearing that for a long time, but I have not heard that they’re on the verge of doing it,” said the official, who spoke on the condition of anonymity. “When they first opened the investigation, this was on the table.”

The former Justice official, who was involved with many of the department’s white-collar crime investigations, said an indictment of Andersen executives could be used to speed the investigation.

“Something like this would be a tool to get mid-level people at Andersen to roll over on senior people at Andersen,” the official said. “By handing up an indictment, speedy trial kicks in--it starts a 70-day clock from arraignment to trial. So it turns the heat up.”

The former Justice official also said that an indictment of Andersen executives was plausible based on their own comments.

“The destruction of material documents after you are aware that an investigation is pending could be obstruction of justice. [Andersen executives] admitted to shredding documents. The question is what’s in the documents that were shredded, and were the executives aware of an investigation when they shredded them? The fact that they are investigating Andersen is no secret. And one of the most likely charges is obstruction.”

Delta Air Lines, the third-largest U.S. carrier, on Thursday became the latest major company to abandon Andersen in the wake of the Enron scandal.

In severing a relationship that goes back five decades, Delta joined other high-profile companies including mortgage giant Freddie Mac, big pharmaceutical concern Merck & Co. and SunTrust Banks in dropping Andersen, though Freddie Mac will still use the firm for consulting work.

Just four months after Andersen’s auditing practices were linked to the collapse of Houston-based Enron, the accounting firm has lost at least $85 million in business, according to a review by The Times of accounting fee statistics from federal regulatory filings.

Although that is just a tiny slice in the firm’s estimated $4.5 billion in annual North American revenue, industry observers said it represents an ominous trend for the country’s fifth-largest accounting firm, which audits about 2,400 U.S. public companies annually.

Commenting on the losses, Andersen spokesman Patrick Dorton said the lost clients “represent a small fraction of our total revenues and client base.”

“We are gratified that the vast majority of Andersen’s clients remain with the firm,” he said.

But one measure of how bad things are going for Andersen is how recent auditor changes are sorting out. There have been 75 changes in auditors of public companies served by the Big 5 accounting firms since Jan. 1, according to Auditor-Trak, a service of Atlanta-based Strafford Publications. Andersen has been on the losing end of 35 of those changes and has gained only one, Auditor-Trak said.

“This suggests a disturbing trend,” said Richard Ossoff of Strafford Publications. “If in the coming weeks a significant number of high-profile clients also abandon Andersen, the risk of accelerating defections will be difficult to stem.”

Andersen also faces the risk of individual partners or groups of partners bolting for other firms, taking their clients with them. Each big client defection has the potential to add to the cycle.

The firm has attempted to stem the tide by settling some of the larger lawsuits against the firm for its accounting work. Last week, it agreed to pay $217 million in damages for failing to uncover fraud involving the Baptist Foundation of Arizona, a church-based investment fund it audited.

Andersen also has made an initial offer to settle the Enron claims for $750 million, to be paid over a multiyear period, according to attorneys familiar with the offer. But for such an offer to work, Andersen must hold on to a client base large enough to generate the profit that would go into the settlement.

Meyer reported from Washington, Hirsch from Los Angeles. Times staff writer Edmund Sanders in Washington contributed to this report.