House Grills Fired Enron Auditor

An Arthur Andersen auditor fired for destroying documents in the Enron affair told congressional investigators Wednesday he was just following the advice of the accounting firm's lawyers.

The auditor underwent several hours of questioning as the White House disclosed that President Bush's chief economic adviser, Lawrence Lindsey, was asked to study the impact of an Enron collapse after presidential aides were alerted to the problem last fall.

In regard to document destruction, the former chief auditor for Andersen's Enron account, David Duncan, said that the accounting firm's lawyers suddenly began emphasizing the accounting firm's policy allowing destruction of some documents.

Duncan told investigators that in September, general discussions began at Andersen of what Enron-related documents to discard.

"It was unusual" to emphasize the document-destruction policy, David Duncan told the investigators, according to congressional sources familiar with what he said. The sources spoke on condition of anonymity.

An Andersen spokesman declined to comment.

In mid-August, an Enron whistle-blower told her employer and a friend at Andersen that she was concerned about accounting practices that kept hundreds of millions of dollars in Enron debt off the company's books. The whistle-blower was a former Andersen employee who had worked for Duncan.

According to the sources, Duncan told investigators that an Oct. 12 memo from one of the Andersen's firm's lawyers was the beginning of an effort to discard many records.

Andersen has said that Duncan organized a two-week document destruction effort that began in late October. The firm fired Duncan this week.

At the White House, spokesman Ari Fleischer said Lindsey, who was paid $50,000 by Enron in 2000 as a member of an advisory board, concluded that Enron's collapse would not hurt the U.S. and global markets. That is the same finding reached by Peter Fisher, the Treasury undersecretary in charge of financial markets, who opened a review after two phone calls from Lay to Treasury Secretary Paul O'Neill on Oct. 28 and Nov. 8.

In another development regarding Andersen, it was disclosed that Enron whistle-blower Sherron Watkins told a friend and former colleague at the accounting firm last Aug. 20 that she had concerns about Enron's accounting practices. It was disclosed earlier that Watkins warned Lay about her concerns, which focused on outside partnerships used by Enron executives to keep hundreds of millions of dollars in debt off the company's books.

A hurried meeting took place Aug. 21 and Duncan participated. The Arthur Andersen meeting took place the day before Watkins detailed her concerns in a meeting with Enron Chairman Ken Lay.

"It's now clear to us that key players at Andersen as well as Enron knew of the growing problems months before the company imploded," said Ken Johnson, spokesman for the House Energy and Commerce Committee.

Duncan "cooperated fully with our investigators," said Johnson. "He answered all of our questions."

Rep. James Greenwood, chairman of the Commerce panel's investigations subcommittee, revealed that the Andersen colleague Watkins spoke to on Aug. 20 summarized their conversation.

"This document raises additional concerns about Andersen's knowledge of potential accounting irregularities and the subsequent destruction of Enron-related documents," Greenwood said.

After Watkins' phone call to her former Andersen colleague on Aug. 20, the accounting firm notified Enron's general counsel and were told that the law firm of Vinson & Elkins was conducting an investigation.

"We're still looking into the facts here," said Patrick Dorton, an Andersen spokesman. "We don't know what additional steps were taken" by the accounting firm in response to the call from Watkins.

"If there was anything improper, we'll take the appropriate action," Dorton said.

The accounting firm took out a full-page ad in major newspapers seeking to assure the public that it will "do what is right" in the Enron investigation and promising to cooperate with government and congressional investigations.

The ad, in the form of a letter from Andersen chief executive Joe Berardino, said some of the disposed-of documents had been recovered from electronic sources and had been turned over to the government.

"This is the most difficult and challenging episode in our firm's history," Berardino wrote. He pledged that Andersen "will be a better, stronger firm as a result of these events."

In a separate development, the former chief of staff for Sen. Joseph Lieberman, who is leading one of the investigations of Enron, tried unsuccessfully last summer to arrange a meeting between the senator and Lay, the Enron chairman. Lieberman's spokesman, Dan Gerstein, said he does not know what Lay wanted to meet about.

The lobbyist, Michael Lewan, held three meetings with staff members for Lieberman, whose Governmental Affairs Committee begins Enron hearings Jan. 24.

Lieberman's relationship with Lewan, who remains an outside political adviser to the senator, will have no effect on the investigation, Lieberman's spokesman said.

Lewan held separate courtesy meetings with Joyce Rechtschaffen, staff director of the Governmental Affairs Committee, and the committee staff member handling energy policy, David Berrick. He also discussed Enron's broadband business with Chuck Ludlam on Lieberman's personal staff.