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Andersen fires partner for destroying Enron files

Andersen, the accounting firm accused of bungling Enron Corp's audit, on Tuesday said it would fire its lead partner in charge of reviewing the company's books, saying he ordered Enron documents be destroyed after learning federal regulators wanted to see them.

The dismissal of David B Duncan is the first move by Andersen to pin blame on someone for mishandling Enron. It is also the latest in a series of blows to Andersen's reputation as one of the world's top accounting firms.

Tuesday's disclosure may help staunch some of the bleeding after Andersen admitted last week that Enron-related documents were destroyed, some industry experts said.

"What Andersen is doing now will make them look better than if they had done nothing," said Itzhak Sharav, an accounting professor at Columbia University. "But they're not going to walk away free. The stakes are too high."

Andersen said "thousands" of e-mails and "large numbers" of paper documents relating to Enron were quickly destroyed shortly after Duncan learned on October 23 of a request by the Securities and Exchange Commission for information on Enron's audit.

"Although the firm is still working to collect all the facts, it has learned that at the direction of the lead partner an expedited effort to destroy documents in Houston was undertaken," Andersen said in a statement.

Duncan was traveling and not immediately available for comment, a worker in his Houston office said. But an attorney representing Duncan said the partner had followed instructions from an Andersen in-house lawyer. Duncan is set to meet with congressional investigators probing Enron's collapse on Wednesday.

NEW MANAGEMENT FOR HOUSTON

Andersen also said it put three other partners involved in Enron's audit on leave, and four Houston-based partners were relieved of their management responsibilities. It said new management would take charge of its Houston office.

The No 5 accounting firm faces ruin over lawsuits questioning its handling of Enron, with insurance unlikely to cover potential payouts, according to industry experts.

But the latest developments may lighten the company's woes if it can prove that the destruction of Enron's documents was an isolated violation of policy rather than a company-wide problem.

"This actually makes things better for them because they're trying to localise the damage," said Shyam Sunder, a professor of accounting, finance and economics at the Yale School of Management. "They're trying to save the rest of the organisation by providing claims or evidence that this was a local action."

However, it is also positive news for lawyers suing the accounting firm given it is practically an admission that it mishandled the Enron audit, industry experts say.

Andersen's latest disclosures also raise several questions about chief executive Joseph Berardino's congressional testimony in December.

Berardino admitted that the Andersen audit team made an "honest" error by not consolidating one of Enron's off balance sheet partnerships into its financial statements. But he said Enron did not provide its auditors crucial data that went to the heart of its collapse.

Late on Tuesday, House Financial Services Committee Chairman Michael Oxley called on Berardino "to clarify and correct any inaccuracies in his testimony before the committee on December 12."

The committee is one of six congressional panels investigating the Enron debacle and Andersen's role in it.

'STOP THE SHREDDING'

In a story that parallels the stunning events surrounding Enron's collapse, Andersen said Duncan called an urgent meeting to organise the quick disposal of Enron-related documents.

Of particular importance, Andersen said Duncan called the meeting on October 23 shortly after Enron had received a request from the SEC about its accounting and financial reporting.

The firm's document policy says no documents must be destroyed if there is a threat of litigation.

Most of the activity to delete e-mails and to discard desk files and other documents took place in the days following that meeting, Andersen said. The destruction apparently only stopped after Andersen was subpoenaed by the SEC in early November.

An assistant to Duncan sent an e-mail to other secretaries on November 9, the day after the firm was subpoenaed, telling them to "stop the shredding."

In fact, Andersen in its statement said the document shredding was "on such a scale and of such a nature as to remove any doubt that Andersen's policies and reasonable good judgment were violated."

Andersen late Tuesday released an e-mail sent out by an Andersen in-house lawyer on October 12 reminding employees working on the Enron audit of the firm's document policy.

The blue-chip firm's policy required that preliminary versions or drafts of documents be destroyed but that audit working papers be retained for at least six years.

The e-mail, sent out a few days before Enron announced earnings that prompted investor concerns it was not being forthright about its financial statements, fueled speculation over whether Andersen had deliberately destroyed documents.

One of the partners Andersen announced on Tuesday it was stripping of responsibilities was Michael Odom, who received that e-mail and was one of the partners responsible for the company's Houston office.

"I think that Andersen has to show that they're doing something," Sharav said. "It may be too late, but they had no choice. They're trying to minimise the damage."

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