WASHINGTON – Ahead of congressional hearings into fraudulent accounting practices, Arthur Andersen LLP has fired its lead Enron auditor and is putting three others on leave.
It was the first time that Andersen acknowledged that document destruction occurred after Enron received requests from federal regulators for information on its financial reporting.
The accounting firm said it is firing lead auditor David B. Duncan because he organized a "rushed disposal" of Enron documents last fall after the Securities and Exchange Commission requested information about the failing energy giant.
Andersen also said that four partners in its Houston office would be stripped of management responsibilities and that three auditors had been put on administrative leave.
Duncan ordered the destruction of documents during an Oct. 23 meeting. Two weeks later, in a desperate e-mail, his assistant said, "Stop the shredding." A day before that, Andersen had received a federal subpoena for the documents.
The law firm of Sullivan & Cromwell, which is representing Duncan, said he is cooperating with investigators.
Andersen's chief executive officer, Joseph Berardino, did not rule out the possibility that wrongdoing reached higher into the accounting firm than the auditors being disciplined.
"We're not quite sure yet," he said in a telephone interview. "We want to make sure we have enough facts to make a call."
The company said it is replacing the management of its office in Houston, where Enron is based. Four Andersen partners in the Houston office "have been relieved of their management responsibilities," the accounting firm said.
The Chicago-based firm said it will fire any other employees found to have participated in the improper destruction of documents, which it disclosed last week.
Its statement said it had "discovered activities including the deletion of thousands of e-mails and the rushed disposal of large numbers of paper documents."
The SEC has been investigating Andersen's role in Enron's complex accounting, including questionable partnerships that kept about $500 million in debt off the energy company's books and allowed Enron executives to profit from the arrangements.
The SEC's enforcement director, Stephen M. Cutler, said last week the agency was widening the scope of its investigation to include Andersen's destruction of documents.
The Justice Department is pursuing a criminal investigation of Enron, which became the biggest corporate bankruptcy in U.S. history on Dec. 2.
"If anyone at Enron broke the rules, they will be punished," Treasury Secretary Paul O'Neill said in a speech to a retailers' group.
O'Neill is among the Bush administration officials who received telephone calls last fall from Enron Chairman Kenneth Lay seeking help for Enron as it careened toward collapse. O'Neill has said he dismissed any suggestion of intervening to help the company.
Also Tuesday, the New York Stock Exchange delisted Enron stock, saying the shares "are no longer suitable for trading" on the exchange. The delisting means the stock, which sold for $83 a year ago but has changed hands at no higher than $1 since December, can only be traded over the counter.
House Banking Committee Chairman Michael Oxley, R-Ohio, called on Berardino "to clarify and correct any inaccuracies" regarding the Enron partnerships in his Dec. 12 testimony before the panel. "As you know, providing false testimony to Congress is a serious matter," Oxley wrote in a letter to Andersen.
And California legislators investigating last year's energy crisis in the state said Andersen's destruction of Enron documents may have violated a state Senate committee's subpoena.
In addition to firing Duncan, Andersen said it was placing Enron auditors Thomas H. Bauer, Debra A. Cash and Roger D. Willard on administrative leave.
Duncan called an urgent meeting on Oct. 23 to organize an "expedited effort" to destroy documents, Andersen said, a few days after he learned that the SEC had requested information. The SEC sent a letter to Enron on Oct. 17 asking for information after the company reported hundreds of millions of dollars in third-quarter losses.
The fact that Andersen employees destroyed documents after learning of the SEC inquiry "is more than just unethical. It could be criminal as well," said Ken Johnson, spokesman for Rep. Billy Tauzin, R-La., chairman of the House Energy and Commerce Committee.
Duncan is to meet Wednesday with committee investigators. He already has provided them with six boxes of personal files and records.
"Now that he's been fired, he may have a little more motivation to be cooperative," Johnson suggested.
A telephone message left at the home of a David B. Duncan in Houston was not immediately returned.
In addition to Goddard, the partners removed from the Houston office are Michael M. Lowther, Gary B. Goolsby and Michael C. Odom.
Goolsby signed Andersen's consent order in a major accounting case last June in which the SEC imposed its first anti-fraud injunction against a Big Five firm in more than 20 years, a government source said on condition of anonymity. Andersen agreed to pay a $7 million fine to settle allegations it issued false and misleading audit reports that inflated Waste Management Inc.'s earnings by more than $1 billion.
Andersen disclosed Monday that an in-house lawyer spelled out the firm's document destruction policy for auditors on Oct. 12, four days before Enron announced its third-quarter losses.
The Andersen lawyer, Nancy Temple, e-mailed the policy to a partner in the firm's office in Houston.
Berardino testified to Congress last month that Andersen notified Enron's audit committee on Nov. 2 of "possible illegal acts" within Enron.
He did not mention Andersen's destruction last fall of thousands of documents related to the company, which the SEC, the Justice Department and congressional investigators are seeking in their inquiries.
Asked about that Tuesday, Berardino said executives of the firm didn't learn of the destruction until shortly after New Year's.
— The Associated Press contributed to this report.