In Depositions, Arthur Andersen Staffers Detail 'Shred Room'

HOUSTON – Enron-related documents were destroyed by Arthur Andersen in a "shred room" last fall when the accounting firm moved in a commercial-grade shredder from Enron's headquarters, an Andersen office manager said in a recent deposition.

The accounting firm had been giving its documents to a professional shredding service, but document destruction was moved in-house and stepped up in late October when an "abnormal volume" of Enron Corp.-related papers was sent Andersen's way, office manager Michael Luna said.

Luna and several other employees said it was not unusual for the accounting firm to destroy large numbers of documents as a matter of routine and that they did not suspect anything improper.

Andersen was charged Thursday with obstruction of justice for shredding Enron documents and deleting computer files.

The employees' testimony came in investor lawsuits connected with Enron's collapse amid allegations of an accounting scandal. The depositions, taken from mid- to late-February, detail a large shredding operation.

By late October, Luna said an employee in charge of the shred room told him the flow of Enron documents had increased to 25 trunks of paper, but he did not think much about it.

"From my perspective that was not a significant amount of shredding," Luna said.

He said he did not learn about questions surrounding the shredding until Andersen publicly acknowledged it Jan. 10. Then, "it concerned me quite a bit," he said.

Andersen has sought to lay blame the accounting scandal on its lead Enron auditor, David Duncan, and others in its Houston office. Duncan, who was fired by Andersen, is cooperating with investigators. When questioned by Congress, he invoked his Fifth Amendment right against self-incrimination.

In announcing Duncan's dismissal, Andersen said Duncan organized a document destruction effort Oct. 23, shortly after he learned the Securities and Exchange Commission had begun inquiring about Enron's accounting practices. The former energy-trading giant filed the nation's biggest bankruptcy in early December.

Investigators have said that an Oct. 12 e-mail sent by Andersen attorney Nancy Temple from the firm's Chicago headquarters authorized the shredding. But Andersen has said the e-mail only reminded Enron auditors of the company's document retention and destruction policy.

Andersen auditor Kim Latham said she and other employees stepped up efforts to review Enron-related documents to determine what could be destroyed shortly after the Oct. 23 meeting.

But she said shredding documents while working on an audit was routine, and she recalled no orders from Duncan to destroy papers.

Shannon Adlong, Duncan's assistant, testified Andersen was lagging behind in its shredding because of staff reductions, but that Duncan told workers to comply with the firm's document retention and destruction policy.

"The discussions were: Our files need to have what needs to be in them, and we need to be in compliance with the retention policy, and to make sure everything is in order," she said.

The stepped-up shredding effort ended Nov. 9 when Adlong e-mailed secretaries to "stop the shredding" — a day after the firm had received a federal subpoena for documents.

Barry Flynn, one of Duncan's lawyers, said Thursday he believes neither his client nor Andersen is culpable in the shredding.

"Where Andersen tried to blame David, we certainly disagree, but we don't have any evidence Andersen did anything wrong," Flynn said.