Andersen Admits Destroying Enron Documents
In a startling announcement to the Securities and Exchange Commission and the Department of Justice late Thursday afternoon, Big Five firm Andersen admitted that members of the firm destroyed perhaps thousands of documents relating to the firm's audit of failed energy giant Enron.
The firm indicated the documents were destroyed according to firm policy requiring "destruction of certain types of documents in certain circumstances." Andersen has suspended its records management policy effective immediately and has instructed all partners and employees to retain all existing documents pertaining to the Enron audit.
Rep. Billy Tauzin (R-LA), Chairman of the House Energy and Commerce Committee, one of the groups investigating the Enron situation, referred to the admission as "deeply troubling" and stated that "Anyone who destroyed records simply out of stupidity should be fired. Anyone who destroyed records to try and subvert our investigation should be prosecuted."
"I have never in my life heard of people in an accounting firm doing something like this," said Lynn Turner, a former chief accountant for the Securities and Exchange Commission. "People in these accounting firms are well-educated professionals and supposedly well aware of their professional responsibility to the public."
Andersen stated that millions of documents relating to the Enron audit still exist, and that an effort was underway to retrieve some of the destroyed documents that were deleted from computers. The firm also indicated that the destruction of documents happened months before the SEC subpoena for documents was issued, but that at this time the firm has been unable to determine if the destruction continued after the subpoena was issued or not.
Andersen has issued a second press release clarifying some of the questions that were raised in its initial announcement.
Andersen has asked former U.S. Senator John Danforth to conduct a comprehensive review of the firm's records management policy and to recommend improvements.
Justice Department Joins in the Legal Battle
In related news, the Justice Department confirmed that it has begun a criminal investigation of Enron Corp. in an attempt to determine whether the company defrauded investors by deliberately concealing information about company finances.
In addition to the Justice Department investigation, Enron and Andersen are being investigated by the SEC. Other investigations by the Labor Department and four congressional committees are also pending. Several civil suits have been filed against current and former Enron directors and executives as well as against Andersen.
Enron attorney Robert Bennett welcomed the Justice Department investigation, hoping that the federal government will centralize its other investigations into this one inquiry.
Attorney General John D. Ashcroft and an aide have recused themselves from the investigation, having received significant campaign donations from Enron during the last election. The U.S. Attorney's Houston staff has also recused itself due to connections with Enron.
Enron announced in October that it had overstated profits on financial statements for the past four years due to what it called accounting errors resulting from debts being concealed in partnerships that were not included on the company balance sheet. Several senior Enron executives sold hundreds of millions of dollars in stock earlier last year, before the Enron's stock price began to plummet. Meanwhile, employees of the firm who owned company stock were locked into agreements preventing them from selling the stock until they reached age 50. Many Enron employees have watched their entire life savings dwindle to nothing in recent months.
Bush Administration Was Warned of Enron Problems
Yet another Enron-related announcement Thursday provided the news that senior members of the Bush administration met with Enron chairman and chief executive Kenneth Lay as many as six separate times prior to the announcement of the company's collapse.
Mr. Lay met with Treasury Secretary Paul O'Neill and Undersecretary Peter Fisher to discuss the fear that the company was unable to meet its bond obligations and was headed for bankruptcy. In addition, Mr. Lay had a telephone conversation with Commerce Secretary Don Evans in which the same problems were discussed. The government officials agreed that no government action should be taken to intervene in the Enron situation.
President Bush indicated concerns about finding ways to protect investors from losing their pension funds in company failures, and also expressed his concern about a need for more understandable financial statement disclosures.