Tension Between Judge, Andersen Lawyer Boils Over
Courtroom tensions in the Arthur Andersen criminal trial boiled over Thursday, with the federal judge hearing the case accusing the firm’s lawyer of “the most underhanded thing I have ever seen” and the attorney firing back with charges of bias.
The exchange happened outside the jury’s presence and after government witness David B. Duncan testified under cross-examination that he had not destroyed key Enron audit documents.
The fracas erupted as prosecutors asked U.S. District Judge Melinda Harmon to bar Andersen from introducing into evidence a billing statement the firm had generated for its Enron Corp.-related work last fall. Harmon said the firm should have produced the document in response to a prosecution request much earlier and was violating an agreement by seeking to introduce it Thursday, blasting defense attorney Rusty Hardin’s action as underhanded.
Hardin retorted that the judge was expressing bias toward the prosecution and preventing jurors from viewing accurate information.
“For you to impugn my integrity and our effort, I am deeply resentful,” Hardin said from a lectern across the room.
“Well then, resent away,” Harmon replied.
“Keep the truth from them all you want,” Hardin shot back, referring to the jury.
The heated exchange, which came after testimony had ended for the day, underscored the tensions simmering under the surface in the case, the first criminal trial arising from the meltdown of Enron, which cost billions of dollars in investor and pension losses and thousands of jobs in this Texas financial mecca.
Andersen has been charged with one count of obstruction of justice for its admitted shredding of Enron documents. Hardin has repeatedly crossed swords with prosecutors and made wisecracks in exchanges with Harmon.
The dispute over the billing statements could become a crucial factor in the trial.
Prosecutors believe that a version of one bill, which shows Andersen charged Enron about $720,000 for work on a line item labeled “SEC inquiry” in October and early November, proves the accounting firm’s team of Enron auditors knew the Securities and Exchange Commission had launched a probe at the same time they followed instructions from Duncan, the team leader, to destroy documents Oct. 23.
Andersen said the billing statement it sought to introduce as evidence was a final version that may show the actual sum charged was far less, meaning that fewer Andersen employees were involved in the Enron account as the energy trader responded to an informal inquiry by the SEC.
Duncan has said he directed subordinates to shred Enron-related files in order to keep records away from plaintiff’s lawyers and the SEC, but didn’t believe at the time that his actions were a crime.
On cross-examination Thursday, Duncan said he saved documents explaining the allegations made by Enron Vice President Sherron S. Watkins to an Andersen partner, James Hecker. Hardin also asked about numerous other documents that were not destroyed that detailed internal disputes between Duncan’s team and Andersen’s accounting-standards unit in Chicago.
Prosecutors have not said what records they believe Andersen shredded or whether any would have been damaging if discovered by the SEC.
The firm still could be convicted if the shredded documents were extraneous material, but prosecutors may seek to show some of them were potentially important to the investigation in order to persuade the jury that Andersen acted with corrupt intent.
Through his cross-examination of Duncan, Hardin appears to be trying to persuade the jury that Andersen executives never intended to conceal critical information from the SEC. The executives’ intent is pivotal, because destroying files is not in and of itself a crime. The law states a defendant must “corruptly persuade” others to make evidence unavailable for an official proceeding, such as a federal investigation.
Thursday’s testimony came as the two sides squared off over the legality of part of Andersen counsel’s line of questioning.
Prosecutors asked in court papers this week that Harmon bar the firm from using a “generalized preservation of documents” as evidence that it is not responsible for the actions of executives who may have acted corruptly. The firm responded that it should be allowed to present examples of documents that were retained because they provide “strong circumstantial evidence that there in fact was no intent to keep documents from the agency at all.”
In other questioning, Hardin hit repeatedly on an Oct. 12 e-mail, written by Andersen attorney Nancy Temple and later forwarded to Duncan, which said it would be “helpful” for Andersen’s Houston executives to comply with the firm’s document-retention policy, which calls for keeping records that back up the auditors’ final conclusions, and the destruction of other material such as drafts or unnecessary correspondence.
Prosecutors have asserted that the e-mail was a coded message intended to direct executives to begin shredding documents as the Enron scandal swirled around them. But under cross-examination, Duncan said Thursday that he didn’t see the instruction as a major priority. He has said an analyst conference call Oct. 23, in which Enron was heavily criticized, was the trigger that prompted him to instruct his employees to comply with the policy.
The e-mail asking his team to comply with the document policy was “not amongst my biggest priorities,” he said.
