The embattled Arthur Andersen accounting firm plans to fight swiftly an indictment accusing it of obstructing justice by destroying documents in Enron (ENE) affair — the first criminal charges in the nation's biggest bankruptcy.
Andersen, a venerable Big Five accounting firm now struggling for mere survival as a string of its blue-chip corporate clients have dumped it, said the criminal proceedings were tantamount to a "death penalty" against it. The firm called the indictment "a gross abuse of government power."
Andersen, which had been negotiating with Justice Department attorneys for about 10 days, plans to move quickly — possibly to ask a judge to dismiss the indictment, attorneys for the firm said Thursday. They spoke in a conference call with reporters on condition of anonymity.
At the least, the lawyers said, Andersen intends to demand that the government spell out which employees it believes were responsible and what they did. The firm may also request the proceeding be moved from Houston to another city.
A court appearance in the case was set for next Wednesday.
In recent days, Andersen has been jettisoned by Delta Air Lines, FedEx Corp., Freddie Mac, Household International, Merck & Co., SunTrust Banks and others. More are considering defecting as they file proxy statements and hold annual meetings. Among others, Waste Management, American Home Products Corp. and UAL Corp., parent of United Airlines, all said their relationship with Andersen is under review.
A federal investigation of Enron's former auditor continues even as prosecutors hold out the possibility of a plea agreement.
'Tons of Paper' Shredded
The one-count indictment announced Thursday was the first secured by the government in the case that has shaken the business world and official Washington. It was returned last week by a federal grand jury in Houston, where collapsed Enron is based.
Andersen "sought to undermine our justice system by destroying evidence," Deputy Attorney General Larry Thompson said at a news conference at the Justice Department.
Over a monthlong span starting in mid-October, the eight-page indictment said, "an unparalleled initiative was undertaken to shred physical documentation and delete computer files. Tons of paper relating to the Enron audit were promptly shredded as part of the orchestrated document destruction."
Much of the shredding occurred after the Securities and Exchange Commission sought documents from Andersen in its ongoing civil investigation of Enron's accounting.
And the prosecutors alleged that the document destruction was much broader than Andersen has contended, with employees in Portland, Ore., its Chicago headquarters, and London being instructed to join in the shredding.
Andersen has sought to lay blame for the document destruction on its lead Enron auditor, David Duncan, and others in its Houston office. Duncan, who was fired by Andersen in January, is cooperating with investigators, said his attorney, Vince DiBlasi.
The maximum penalty for obstruction of justice is a five-year term of probation and a $500,000 fine. But the worst potential penalty could be that Andersen would be barred from auditing and approving financial statements that companies file with the SEC, its core business.
No More New Federal Contracts
On Friday, the government suspended Enron Corp. and its former accounting firm, Arthur Andersen, from entering into new federal contracts.
"To qualify as a responsible contractor, a company or individual must have a satisfactory record of integrity and business ethics," the General Services Administration said in explaining its decision.
Thompson said the Justice Department's investigation into Enron and Andersen, including actions by partners at the accounting firm, was continuing. At the same time, though, he held open the possibility that a plea agreement could still be worked out with Andersen, which had rejected one Wednesday night.
"... In my experience ... pleas do result after an indictment has been brought by a grand jury. That's not an uncommon experience," Thompson said.
Some legal experts believe the Justice Department could be using the indictment against Andersen to pressure it to assist in the Enron investigation. There have been allegations of heavy document destruction at Enron's Houston headquarters.
The bankruptcy of the energy-trading company, the largest corporate failure in U.S. history, has roiled the Washington political establishment. President Bush has close ties to Enron's former chairman, Kenneth Lay. Enron has been Bush's biggest political and financial supporter over the years and the company also has filled the campaign coffers of both Republican and Democratic members of Congress.
Enron's collapse last fall cost millions of investors their money, while thousands of current and former Enron employees lost the great bulk of their retirement savings. Congressional investigations of Enron have focused on the complex web of partnerships that helped the company hide more than $1 billion in debt and report misleading profit figures to investors and the SEC.
The indictment alleged a possible motive for the shredding, saying that Andersen was aware of a wide range of unfavorable financial information about Enron — information that was unavailable to the investing public.
Reuters and the Associated Press contributed to this report.