Andersen Endures More Shake-Ups and Another Week in Court

As Week Three of the federal obstruction of justice trial comes to a close, Arthur Andersen LLP's lead attorney, Rusty Hardin, attempts to pick up the pieces from a week of testimony in which the prosecution has tried to show that Andersen management was wary of possible repercussions from a pending Securities and Exchange Commission investigation and as a result ordered or at least condoned the destruction of possibly incriminating documents.

FBI Agent Raju Bhatia testified this week that the Federal Bureau of Investigation interviewed Michael Jones, the head of Andersen's London office, and that Mr. Jones testified that former Andersen partner and head of the Enron audit team, David Duncan, instructed him to discard "all drafts, e-mails" relating to Enron.

Andersen senior manager Patricia Grutzmacher testified that she was told by her boss last fall that any discussion of destruction of Enron-related documents would be couched in terms of compliance with the firm's document retention policy.

Another witness, David Stulb, head of Andersen's Business Fraud Investigative Services group, testified that he was present when Mr. Duncan spoke of discarding a memo, referring to the document as "Another smoking gun. We don't need this." Mr. Stulb testified that he instructed Mr. Duncan to retain the document as it might be relevant in light of the SEC investigation. The document in question was an e-mail message written by Andersen partner James Hecker describing concerns from Enron whistle-blower, Sherron Watkins. The message said, "Here's the smoking guns you can't extinguish."

Judge Melinda Harmon has indicated that she wants the trial to end by May 31 because she has travel plans in June. In an attempt to meet that deadline, the trial has been going until 6 p.m. in the evening and is expected to continue through the Memorial Day weekend.

Texas Revokes Andersen's License to Practice

In related news, the Texas State Board of Public Accountancy has filed a notice to revoke the accounting license of Arthur Andersen LLP and is asking for at least $1 million in fines and penalties.

The notice states that, "Andersen's failure to comply with professional standards was not the result of the actions of one 'rogue' partner or 'out-of-control' office, but resulted from Andersen's organizational structure and corporate climate that created a lack of independence, integrity and objectivity."

Additional language in the notice describes Andersen as "bringing discredit to the profession punishable under the Rules of the Act, regardless of whether Andersen is ultimately convicted of a criminal charge of obstruction of justice."

More Andersen Offices Leave the Fold

This past week there have been several more changes in Andersen offices, personnel, and clients. Here are some of the highlights:

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