Enron Sparked Conflict, Bad Advice at Andersen

An Andersen partner Friday described internal dissension created by Enron Corp.'s risky accounting procedures, but said the Big Five firm on trial for obstructing justice was guilty only of giving bad advice.

Andersen's lawyer went so far as to say the company not only did not destroy Enron documents as the government has charged, but in fact preserved the full record of its internal debate as the energy trading giant fell into bankruptcy last fall.

Andersen is accused of shredding Enron audit records to keep them from investigators of the Enron debacle. Prosecutors charged that the Chicago-based firm feared severe sanctions after its involvement in previous accounting scandals with Waste Management Inc.and Sunbeam Corp.

Andersen partner Carl Bass told the jury there was brisk, at times tense discussion of Enron in September and October when the company's off-the-books partnerships developed financial problems. Enron was one of Andersen's largest clients and also its riskiest, he said.

As an internal Andersen consultant on accounting rules, he frequently advised Andersen's Enron accountants on what Enron could and could not get away with because the company was known for playing fast and loose with accounting rules.

As Enron spiraled down amid disclosures it used the outside partnerships to hide billions of dollars in debt and inflate profits, Bass said he was surprised to find the Enron team had ignored much of his advice and allowed Enron to adopt far-out bookkeeping methods.

"I believed they were going to follow my advice," he testified. "I knew they weren't doing what needed to be doing."

He sent out a memo expressing his disagreement with their decisions, which in the end led to Enron taking a $1.1 billion charge to third quarter earnings, restating financial results for four years and writing down shareholder equity by $1 billion.

On Dec. 2, with its cash reserves depleted and its credibility shot, Enron, once the nation's largest energy trader, filed for Chapter 11 bankruptcy.

Andersen also is struggling to survive after losing hundreds of clients, but Bass and previous Andersen witnesses have painted a picture of the company as flawed, not criminal. They say Duncan and his group gave Enron bad advice perhaps because they got too close to the company and lost the objectivity required of good auditors.

Under questioning from Andersen attorney Rusty Hardin, Bass said he did not not believe the company encouraged Enron to do anything fraudulent, or took any action to hide its role in Enron's collapse.

"If I thought it was (doing anything) illegal or wrong, I would have objected," Bass said. "I think what Andersen was trying to do was the correct accounting.

"Sometimes accountants can turn out to be wrong ... and that doesn't mean they were necessarily committing a crime does it?" Hardin asked.

"No," Bass replied.

Hardin has suggested that what prosecutors portray as a plot to destroy Enron documents was nothing more than normal business procedure. Through his questions to Bass, he made the point that Andersen's policy was to preserve only final working papers critical to an audit and that that policy had been followed by all.

"Surely I am entitled to suggest ... that these people accurately preserved the (Enron) dispute for the (U.S. Securities and Exchange Commission) rather than destroy it," he said.

So far, all Andersen witnesses including Bass, all of them called to testify by the prosecution, have said they were not told to destroy Enron documents, but acknowledged receiving an e-mail from Andersen lawyer Nancy Temple that contained the company's document retention policy. On Friday, Temple sent a letter to U.S. District Judge Melinda Harmond saying she would not testify in the case, invoking fifth amendment protection against self-incrimination.

Duncan, who has pleaded guilty to obstruction of justice and agreed to testify for the prosecution, told investigators Temple's message was viewed as a signal to destroy Enron documents ahead of a possible SEC investigation. As a result, he said he shredded thousands of audit records.