Duncan Shredding Confusion Described
An Arthur Andersen executive testified Wednesday that the leader of its Enron Corp. audit team, David B. Duncan, sought to destroy an internal memo, saying, “Another smoking gun. We don’t need this.”
The memo served as a cover letter for an e-mail discussing an Enron insider’s claims of fraudulent accounting there. David Stulb, the Andersen executive, said that the cover note described the enclosed e-mail as “smoking guns,” and that Duncan was poised to throw it away before Stulb told him to keep it.
Andersen is charged with obstruction of justice for shredding documents related to its audit of fallen energy trader Enron. Federal prosecutors have been trying to show that Andersen was attempting to withhold evidence from the Securities and Exchange Commission as the agency began its probe of Enron.
Stulb, chief of Andersen’s fraud investigation unit, said he was concerned that Duncan failed to understand which documents should be kept. After the Oct. 31 incident, Stulb said, he called Andersen senior partner John Geron to alert him to the situation. At Geron’s behest, Stulb testified, he called Nancy Temple, an Andersen staff attorney in Chicago, that same day and told her that Duncan “needed guidance” on document retention.
Stulb’s testimony provided the most direct evidence so far that senior members of the firm knew of a potential problem with document destruction in Houston, where the Enron audit team was based. Prosecutors had noted earlier in the trial that Andersen didn’t explicitly order Duncan to cease any document destruction until after the firm received an SEC subpoena Nov. 8. Duncan, the government’s star witness, testified last week that he called a meeting of the Enron auditing team Oct. 23 and instructed its members to comply with Andersen’s document-retention policy. He said his effort was prompted in part by an Oct. 12 e-mail, sent by Temple and forwarded to him, asking the Enron team to comply with the policy.
Duncan, however, testified last week that he viewed the use of the term “smoking guns” in the cover sheet as sarcastic.
Duncan has pleaded guilty to obstruction of justice and is cooperating with federal investigators.
Stulb said he traveled to Houston last October at the request of senior Andersen executives who wanted him to help the firm and Enron prepare for an SEC inquiry of the energy trader’s collapse.
Outside the courtroom, Andersen lead attorney Rusty Hardin said Stulb’s portrayal of Duncan as a confused accountant bolsters the defense team’s contention that the auditor lacked “corrupt” intent, which is required under the language of the obstruction statute.
Moreover, Hardin said, Stulb did not say that he specifically informed Temple of Duncan’s attempt to dispose of a document, only that Duncan needed guidance.
“Why is she [Temple] supposed to think he was destroying documents?” Hardin asked.
But Stulb offered other testimony that appeared to back the prosecution’s assertion that top Andersen executives knew the Enron account was trouble.
Stulb testified that he told senior Andersen executives that he viewed the Vinson & Elkins report as a whitewash. The report had been ordered to examine allegations by Enron Vice President Sherron S. Watkins that Enron had been conducting insider deals with partnerships run by its own chief financial officer, Andrew S. Fastow.
The report concluded that there were no improprieties. It was Watkins’ allegations that were the subject of the e-mail and cover note with the “smoking guns” reference, which had been written by Andersen partner James Hecker.
In other testimony Wednesday, an FBI agent testified that an Andersen partner based in London told him that Duncan informed him during a conference call last October that Enron-related drafts and e-mails should be destroyed. The agent, Raju Bhatia, said that partner Michael Jones, Andersen’s lead Enron auditor in London, told him in an interview that the destruction of Enron-related files in London noticeably increased in the wake of the conference call.
Hardin said outside of court he did not know why prosecutors didn’t call Jones himself to the witness stand.
In questioning of Bhatia and another FBI agent Wednesday, Hardin tried to underscore the point that memos and e-mails being used by prosecutors against the firm were all records that had been retained by Andersen.
