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Enron fires Arthur Andersen as its accountant

Enron Corp fired accounting firm Andersen on Thursday, blaming the auditor for destroying the documents government investigators were seeking for a probe into the fallen energy trader's aggressive and murky bookkeeping.

Enron chairman and chief executive Ken Lay said the company had been willing to give Andersen, which earned $1 million a week for its work with the Houston-based energy conglomerate in 2000, the benefit of the doubt pending an internal investigation into Enron accounting practices.

"We can't afford to wait any longer in light of recent events, including the reported destruction of documents by Andersen personnel and the disciplinary actions taken against several of Andersen's partners working in its Houston office," Lay said in a statement. Enron's board of directors decided to fire Andersen at a meeting on Thursday.

Andersen viewed the firing as an after-the-fact gesture.

"As a matter of fact, our relationship with Enron ended when the company's business failed and it went into bankruptcy. Andersen is committed to continuing to address the issues related to the collapse of Enron in a forthright and candid manner," said Andersen spokesman Patrick Dorton.

As auditor, Anderson had to sign off on Enron's accounting practices, many of which contributed to a loss of shareholder confidence that sent the one-time Wall Street darling into the largest Chapter 11 bankruptcy in history.

Enron's aggressive bookkeeping hid billions of debt off the balance sheet, and later led to a reduction of four years' worth of earnings to the tune of some $600 million.

"That Enron has now fired them after getting into all this trouble, I would liken it to double jeopardy for Arthur Andersen. They were Enron's auditors and now they have been unceremoniously jettisoned," said John Olson, an analyst at Sanders Morris Harris, a Houston-based investment bank.

"They're probably better off now than they were before, because they are facing a lot of litigation."

Andersen's work for Enron has ensnared it in a massive controversy over the accounting profession that led US Securities and Exchange Commission chairman Harvey Pitt to propose tougher regulatory oversight.

Andersen's lead partner on the Enron account in Houston, David Duncan, was fired this week after the Big Five accounting firm confirmed he had ordered the destruction of Enron-related documents after the SEC requested the auditor's files as part of its investigation into Enron. The Justice Department has also launched a criminal investigation.

The firm says Duncan ordered the destruction of the documents, but his attorney says his client did no wrong and was simply following instructions.

Andersen on Thursday confirmed that senior Andersen executives knew of crucial issues surrounding Enron's debt-laden off-balance sheet partnerships last February. The company confirmed the existence of a February 6 memo recounting the meeting, which it described as an annual review at which the auditor decides whether to keep its clients.

The memo specifically mentions related-party transactions with LJM, one of two partnerships then controlled by chief financial officer Andrew Fastow. Fastow earned $30 million working for the partnerships while maintaining his job as Enron's top money man. He was ousted after disclosures that the partnerships led to $1.2 billion reduction in shareholder equity.

On Wednesday, congressional investigators revealed that Andersen was warned of trouble at Enron last summer by an internal whistle-blower. In a conversation with an unidentified Andersen partner, Enron executive Sherron Watkins raised concerns about accounting problems with the off-balance-sheet partnerships.

Andersen said it was assured by Enron in August that and outside law firm, Vinson & Elkins, had been hired to investigate Watkins' concerns.

Enron said it has started looking for a new external auditor.

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