Andersen Investigator: Unaware of Enron Document Shredding

The head of Arthur Andersen LLP's internal investigative unit testified Thursday that he wasn't told documents were being shredded when he visited the accounting firm's Houston office in October to probe accounting problems connected to Enron Corp.

"It would have been nice to know," David Stulb said in his second day of testimony as a prosecution witness.

Stulb had been sent to review Andersen's audit of the energy trader. His testimony followed his description Wednesday of an Oct. 31 meeting with David Duncan, formerly Andersen's lead Enron auditor.

He said he intervened when Duncan considered discarding a printed copy of a potentially damaging e-mail.

The e-mail was attached to a copy of Enron vice president Sherron Watkins' concerns about accounting irregularities that could cause Enron to implode. It referred to the attachment as "smoking guns that you can't extinguish."

Stulb testified that Duncan said, "Another smoking gun. We don't need this." Stulb said it appeared Duncan was going to remove the "smoking gun" e-mail and that Stulb told him to stop.

On Thursday, Stulb also testified he was unaware that Duncan had already told his staff to carry out Andersen's document retention policy, which called for destruction of documents and computer records not needed for final audit papers. He said he learned of the shredding when Andersen publicly acknowledged it in January.

Stulb told the court he thought Duncan was under pressure given the increasing scrutiny of Enron's accounting, and that the auditor was naive and needed guidance on document retention.

Andersen is charged with destroying documents related to Enron audits in October and November as the Securities and Exchange Commission began investigating the energy company's finances.

After Stulb's testimony, Andersen attorney Rusty Hardin and prosecutors clashed over how the jury should be instructed to consider three Andersen employees who have invoked their Fifth Amendment rights and refused to testify.

U.S. District Judge Melinda Harmon will rule later on jury instructions regarding the witnesses: in-house Andersen lawyer Nancy Temple, who sent an e-mail to Houston Oct. 12 urging that Enron auditors be reminded of the document retention policy; Thomas Bauer, a partner on the Enron audit team; and Kate Agnew, a member of the Enron team.