Duncan Provides Controversial Testimony

The Andersen trial continues through the end of week two, while former Andersen partner, David Duncan, spends the week on the witness stand. Mr. Duncan is considered to be the lead witness for the prosecution in their case to try to prove Andersen is guilty of obstructing justice by destroying documents relating to the Securities and Exchange Commission's (SEC's) investigation into the Enron collapse.

The Department of Justice has yet to describe evidence it thinks Andersen destroyed, but as yet that hasn't been an issue in this trial.

In cross-examination by Andersen attorney Rusty Hardin on Thursday, May 16, Mr. Duncan seemed to weaken the government case by stating that he made a point of not shredding documents containing information of discussions between Andersen personnel and Enron's Vice President Sherron Watkins. Ms. Watkins' memo to former Enron Chairman Kenneth Lay and Andersen partner James Hecker, describing her fear that Enron's off-balance sheet partnerships could "implode in a wave of accounting scandals," served to label her as a whistle-blower.

Mr. Hardin referred to a memo from Mr. Hecker describing a discussion with Ms. Watkins as "the smoking gun memo" and displayed surprise when Mr. Duncan said he made no attempt to destroy that document. "You actually retained what you might call the smoking gun memo?" Mr. Hardin asked. "I did retain that memo," Mr. Duncan answered.

Prosecution introduced evidence that Andersen billed Enron about $720,000 for consultation services relating to "S.E.C. Inquiry" last fall at the same time the firm was destroying documents relating to the Enron audit. The Department of Justice will try to show that the Andersen billing records present strong evidence that the firm knew about the SEC investigation at the same time they were shredding documents that might have been subpoenaed in that investigation. Legal experts have indicated that the existence of the billing records seems to establish that many people at Andersen who were involved in the document destruction had direct, personal knowledge of the investigation. It is expected that Andersen will continue to contend that the document destruction was done in the standard course of business and was not illegal.

In a separate action, defense lawyers asked U.S. District Court Judge Melinda Harmon for a hearing away from the jury to question Mr. Duncan about errors he claims the FBI made in their reports of conversations with him. Mr. Duncan has referred to misstatements in the FBI reports which range from, "things I believe I did not say" to "things that I possibly could have said, but don't believe I said."


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