Duncan Notes Sealed, Andersen Lawyer Takes the Fifth

Andersen got more bad news in court Friday as the firm's obstruction of justice trial continued into its fifth day. U.S. District Court Judge Melinda Harmon ruled that attorney-client privilege protects the notes of prosecutors' meetings with former Andersen partner and Enron audit engagement leader David Duncan who is expected to be the lead witness for the prosecution. Mr. Duncan is scheduled to testify this week.

Andersen's attorneys wanted to view the notes, hoping they would corroborate the defense's theory that Mr. Duncan maintained his innocence with regard to the destruction of Enron-related documents right up until such time as he agreed to a plea agreement with the Justice Department. Rusty Hardin, Andersen's lead attorney, expressed his belief that Mr. Duncan agreed to plead guilty to an obstruction of justice charge because of a fear of punishment.

Also last week, Mr. Hardin lost a court battle to suppress the introduction into evidence of lyrics to a song written by Andersen partner James Hecker. The lyrics, written as a joke according to Mr. Hecker, present a derisive look at Andersen's view of its role in the Enron audit, suggesting that Enron provided Andersen auditors with a “gravy train" of billable hours while the accounting methods employed were extremely complex and questionable, putting Andersen accountants at risk of legal exposure. The song, called “Hotel Kenneth Laya," is set to the tune of the Eagles' “Hotel California."

Andersen in-house attorney Nancy Temple, who sent the controversial and ambiguous memo reminding David Duncan and others about the firm's document retention and destruction policy, mailed a message to court on Friday invoking her Fifth Amendment right not to testify. In January Ms. Temple told a Congressional committee that she "never counseled any shredding or destruction of documents," but Ms. Temple has made no public comment about the issue since that time.

Carl Bass, a partner in Andersen's Houston office, testified on Friday that the Enron auditors “were told only to keep final versions of the memos," and lent support to the government's contention that Andersen used Ms. Temple's memo as an excuse to destroy Enron documents.

Another Andersen partner, Amy Ripepi, head of the firm's professional standards group, testified on Friday that Mr. Duncan received a large bonus from Andersen in early October 2001 for his work on the Enron engagement. The bonus is estimated at $150,000. Ms. Ripepi also testified that there is reason to believe that Mr. Duncan was acting alone and not at the direction of others when he directed the shredding of Enron-related documents. According to a money.cnn.com report of Ms. Ripepi's testimony, Mr. Duncan may have been afraid that the Quality Control Inquiry Committee of the American Institute of Certified Public Accountants might launch an investigation into the Enron audit as a result of the Securities and Exchange Commission's investigation. If an audit failure was determined to have occurred, the partner in charge of the audit could be placed on a watch list or termination could be recommended by the committee.

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