HOUSTON – Federal prosecutors alleged on Tuesday that accountant Andersen destroyed Enron Corp. records to cover up a series of billion-dollar accounting errors, but defense lawyers countered in opening statements that the firm preserved the very documents on which the government's case is based.
Laying out their cases for the 12 jurors and four alternates hearing the case, both sides made opening remarks that offered a road map of their strategies for Andersen's criminal obstruction of justice trial.
U.S. District Judge Melinda Harmon is overseeing the four-week proceeding, the first criminal case born from bankrupt energy trader Enron's collapse into record bankruptcy to reach trial.
"There was a day when the firm knew that the law was going to come knocking at its door because of a series of billion dollar accounting errors," assistant U.S. Attorney Matt Friedrich told jurors. "They made a choice to delete those files, to destroy those files to keep them away from law enforcement. All this case is about is those choices to help the partnership and hinder law enforcement."
Evidence provided by lead Enron audit partner David Duncan, who Andersen [ANDR.UL] fired on Jan. 15, will be enough to prove the government's case, he said. Duncan pleaded guilty on April 9 to obstructing justice in the Enron case and agreed to cooperate with prosecutors in exchange for a lighter sentence.
"If you credit David Duncan's testimony, if you believe him, that alone would be sufficient for you to convict Andersen," Friedrich said.
Prosecutors allege Andersen obstructed justice in October and November of last year by destroying Enron-related records it knew were being sought by regulators from the U.S. Securities and Exchange Commission.
Andersen's foreknowledge that Enron's accounting errors would draw scrutiny led them to move quickly to hide evidence of wrongdoing that might result in more punishment for the firm, he said.
"They knew these things were coming because Andersen was already under a form of probation with the SEC," he said, referring to a consent decree Andersen signed with the securities regulator last year to settle an accounting scandal involving trash removal company Waste Management Inc.
NO SECRET CONSPIRACY
Lead Andersen lawyer Rusty Hardin argued that Andersen made no secret it was destroying records, and in fact retained many documents that should have destroyed if it were truly conspiring to get rid of evidence. If it was a conspiracy, it was the most incompetent one in history, he said.
"This document destruction case is based on documents and evidence we preserved and gave them. Is there some irony in that?" Hardin asked.
When all of Duncan's loose Enron audit papers were collected, they filled 40 boxes -- proof that Duncan was truly not trying to hide anything. "Wouldn't you expect these to be destroyed? If these people were trying to hide things from the SEC, these would never see the light of day," Hardin said, hefting a telephone book-sized sheaf of e-mail records above his head.
The reason the Enron team's shredding volume was so high in October was because they were too busy working on the account to shred throughout the year like they should have. The amount sent for destruction in October was a year's worth of extra papers, and worked out to one box per member of the engagement team, Hardin said.
"Shredding is not a dirty word in the accounting world. That's the way you get rid of a client's confidential information," he said.
The first witness for the prosecution, SEC lawyer Thomas Newkirk, took the stand briefly before the lunch break.
An investigator in the Sunbeam and Waste Management accounting investigations, Newkirk is expected to be quizzed about Andersen's conduct in those cases, which also centered on what documents it should have retained.
Judge Harmon granted a government request to introduce evidence from those cases as proof that Andersen had a motive to hide its role in the Enron case, which the defense vehemently opposed in arguments before the trial on Tuesday morning.
Since its role in the Enron scandal became public late last year, Andersen has been hurtling toward a breakup amid a vortex of lawsuits and government investigations. More than 300 of its clients have left it, and many of its business units have been sold or are on the block. The criminal indictment, unsealed March 14, has pushed Andersen to a precipice where a conviction could kill it.