On June 3, 2002, Andersen called its last witness in the shredding case brought against the accounting firm by the Department of Justice (DOJ). The DOJ charges that Andersen obstructed justice by destroying important documents out of fear of an investigation by the Securities and Exchange Commission (SEC). But testimony by Andersen partners and staff has raised doubts about the timeline and motive needed to prove those charges.
Timeline and Motive
Testimony by David Duncan's former secretary Shannan Adlong put the timeline in perspective. Ms. Adlong testified that former Enron audit partner Duncan ordered staff to comply with the firm's document retention policy during a meeting in Houston on October 23rd. She also testified the shredding stopped after Andersen received a subpoena from the SEC on November 8th for documents related to an investigation into Enron.
John Riley, an Andersen partner who had worked for 11 years for the SEC and now specializes in SEC matters, backed up Ms. Adlong's story. He said that as late as October 23rd, the firm had no reason to expect an SEC investigation. That changed on Nov. 5th when Andersen determined that Enron had to restate its earnings going back to 1997. "At that point, you pretty well know the SEC is going to be investigating those issues," Riley said. Enron announced the restatement three days later.
Mr. Riley, a former chief accountant of SEC's division of corporation finance, also provided testimony about SEC's processes that cast further doubt on DOJ's theory. According to the Financial Times, Mr. Riley said the firm knew of an informal inquiry. But, he explained, "thousands of comment letters are sent out by the SEC staff each year." During his tenure at the SEC, only one such letter, out of at least 100 sent, resulted in an investigation by the SEC. Under cross-examination, he acknowledged the percentage would be a little "higher" for informal inquiries from the SEC's office of enforcement, which is where Enron's originated. Still, he said, it was unusual for such letters to ask for materials in such a short time-frame and to be signed by the head of the division. His comments made it seem unlikely that Mr. Duncan or the firm acted out of fear of an SEC investigation, since they had no reason to expect one would be forthcoming.
To counter the doubts raised by the defense, the prosecution plans to present a rebuttal case. Then both sides will conclude with closing arguments.