Andersen Lawyer Focuses on Firm's Surviving Enron Documents

Arthur Andersen LLP's lawyer tried to show Wednesday that the accounting firm had preserved many of the documents prosecutors are using as evidence that it obstructed justice by destroying records about Enron.

"Is this a document produced in discovery by Arthur Andersen?" firm attorney Rusty Hardin asked about the documents, noting they were kept and turned over to the Department of Justice as both sides prepared for trial.

"Yes," said FBI Agent Barbara Sullivan, who was on the stand to introduce the documents into evidence.

Andersen is charged with obstruction for destroying Enron-related documents and computer records as a Securities and Exchange Commission probe loomed.

Andersen officials starting reminding employees in October about the company's records policy. Prosecutors say the reminders were an attempt to implicitly encourage employees to shred records about Enron before investigators asked for them.

Andersen says it only wanted to organize files and get rid of excess material that should have already been destroyed.

FBI Agent Raju Bhatia testified Wednesday that Michael Jones, the head Enron auditor in Andersen's London office, said in an interview with investigators Feb. 25 that his boss, David Duncan, told him during an October conference call that "all drafts, e-mails" related to Enron should not be maintained.

Document destruction in Andersen's London office "noticeably accelerated" after Duncan's call, Bhatia quoted Jones as saying.

Duncan told his Houston staff on Oct. 23 to comply with the firm's document retention policy, which calls for discarding extraneous material.

Bhatia told Hardin he wrote a draft of the interview and threw it away when he produced a final copy.

"You followed the FBI's document retention policy, didn't you?" Hardin asked. Harmon sustained prosecutors' objections, so Bhatia didn't answer.

Documents Hardin asked Sullivan to identify included:

— An Aug. 23 memo from an Andersen partner regarding an Enron vice president's concerns about Enron accounting labeled: "Smoking guns that you can't extinguish."

— Memos regarding financial vehicles run by Enron's former chief financial officer credited with helping fuel the company's failure.

— Memos and e-mails regarding disputes between Enron audit team members and in-house Andersen consultants about how the vehicles should be treated on balance sheets.

The "smoking guns" memo referred to Enron vice president Sherron Watkins' concerns Enron was doing deals with financial vehicles backed by Enron stock and run by former chief financial officer Andrew Fastow.

Enron enlisted Vinson and Elkins, its outside counsel, to investigate Watkins' concerns. The firm found no serious problems.

David Stulb, an Andersen partner in charge of the firm's in-house forensic investigative group in New York, testified Wednesday he called Vinson & Elkins' analysis a "whitewash" when he read it in late October.

Stulb also recounted an instance where Duncan opened a file and commented it was "another smoking gun — we don't need this."

Stulb said he instructed Duncan to keep it and told an official in Andersen's legal department that Duncan needed more guidance in the retention policy.