TOPICS > Economy

Called to Account

May 20, 2002 at 12:00 AM EDT


GWEN IFILL: The government’s case against Arthur Andersen entered its third week today in federal court in Houston. The accounting firm is charged with destroying records involving audits of the Enron Corporation in order to keep them out of the hands of federal regulators.

Central to the government’s case is David Duncan, a former Andersen auditor who, in a deal with prosecutors, has admitted to destroying documents. Duncan spent four days last week on the witness stand.

For an update on the trial, we’re joined by Kurt Eichenwald, a reporter for The New York Times; and Ira Sorkin, a former regional administrator for the Securities and Exchange Commission, and now a lawyer with Carter, Ledyard, and Milburn in New York.

Kurt Eichenwald, you have been sitting in this courtroom every day keeping track of this trial. So was David Duncan the smoking gun, the star witness he was purported to be?

KURT EICHENWALD: Not really. What has been interesting about this trial so far is that if you stacked up all the documents the government proved were destroyed, it wouldn’t get up to your knee. They’re building their case. Even at this point, they’re talking a lot about motive and about how the desire to hide information was being created, but haven’t told a lot about why it was done.

Duncan was actually a very problematic witness because in the cross-examination, he had such issues as when Andersen’s lawyer asked, "What information did you want to keep from the SEC?"– kind of a basic question — he wasn’t able to give an answer… at least, not one that seemed particularly credible. So all in all, Duncan was somewhat of a wash.

GWEN IFILL: Ira Sorkin, do you think also that Duncan was a wash? Did he do what they set out for him to do?

IRA SORKIN: I think you have to look at a case that the government presents as a mosaic. Duncan was one piece of the case. I think you need to understand that government cannot put all of its evidence on through one witness. They’re going to build on their case. I heard what Kurt has to say. Quite frankly, it’s not the number of documents that are destroyed. It’s the fact that documents were destroyed, and it is up to the government to decide what is relevant or not relevant. That’s not Andersen’s call.

I think it is also important to understand that Duncan is a witness here, who played only a role. And as I understand what happened today, Nancy Temple, who has asserted the Fifth Amendment, as well as another Andersen employee, also indicated through documents that the government introduced that there was some correlation between what took place in Houston and what took place in Chicago through the Council’s office.

GWEN IFILL: Let me ask Kurt to describe those documents for us since he was in the courtroom today.

KURT EICHENWALD: Well, actually the documents today were probably some of the more significant things that have been introduced. During the fall, this lawyer from Chicago, Nancy Temple, who worked with Andersen, was taking notes of her conversations with a group of Andersen managers including David Duncan. And today what was introduced was, in particular, one document that made references to possible SEC investigations related to Enron, also concerns about an earlier case involving Andersen called the Waste Management case, which had resulted in an injunction against Andersen. And the government’s case is essentially that the Waste Management case is the motive for what led to the document destruction in this instance. And this so far was the strongest piece of evidence supporting that contention.

GWEN IFILL: Mr. Sorkin, isn’t Nancy Temple the same executive who is accused or was supposed to have authored this document retention memo suggesting that perhaps it might be a good idea, or at least open to interpretation that it was a good idea, to destroy these Enron documents? And has she… is she going to be testifying in this trial?

IRA SORKIN: It is my understanding that she has asserted the Fifth Amendment privilege, unlike what she did before Congress. But I think you also need to know, or at least understand, is that when the government is introducing this case, they need to show that there is a motive here. That was a very tough call for the defense.

The motive here is quite simply if Andersen got hit again about it SEC in another case, even a civil case, not a criminal proceeding, the impact could have been draconian on Andersen’s ability to continue as a viable accounting firm. Their license would have been susceptible, their ability to practice before the SEC, There clearly was a very strong motive not to get hit again by the civil regulators.

GWEN IFILL: Kurt Eichenwald, let’s go back for a moment to the case with David Duncan. It seems the government was trying to prove, prosecutors were trying to prove, that he had some sort of criminal activity. In fact, he has admitted in his plea deal to some criminal activity. But that the government was trying to prove the opposite? Is that the way it worked?

KURT EICHENWALD: It is sort of an interesting scenario because the government essentially is saying this man is a criminal, and Andersen is saying, "No, he’s not," which, given that he is the chief witness against Andersen, it is interesting.

The government’s contention is very simple: Duncan knew that the SEC was coming; he knew that there was an investigation, and in response, he orchestrated a massive destruction of records in the fall of last year. That is, you know, pure and simple, an obstruction of justice. Andersen’s response to that is, while there was a destruction of records– no one disputes that– the motive for that destruction had nothing to do with the impending SEC investigation. It was an attempt to get the records completed, to put them in final form.

There were also some intimations last week that they were… that it was because the Andersen partners from Chicago were coming down to take a look at how the folks in Houston had done putting their records together.

GWEN IFILL: In fact under cross-examination, Duncan apparently couldn’t recall what the memos were that he is supposed to have destroyed.

KURT EICHENWALD: No. No. He was able to recall them. What he described were copies of records, old financial, publicly filed financial reports, early drafts of memos. Basically he had described a little bit of, you know, innocuous material. I forget the word he used, but it was something like that.

Now the thing is, that was the one- inch thick stack he handed to his Secretary. There are thousands and thousands of other documents that were destroyed by the people who worked for him– boxes upon boxes. We don’t know anything about what was in there, what went into the decisions of how to destroy those, why to destroy those. Presumably that’s what the government’s case is going to be presenting over the next few days.

GWEN IFILL: I was going to ask Mr. Sorkin about that. What do you think is the government’s strategy and what do you think the prosecution’s strategy in the case at this point?

IRA SORKIN: It is clear from today that the government is tying a link to Chicago. There was evidence that was introduced, as Kurt told you, about memos that reflected the fact that Andersen, at least through senior people, knew there was an SEC or the potential, I should say, for an SEC investigation. It was also the potential that Enron had problems– the off-balance-sheet bookkeeping. So at least what the government is doing up to this point– and I said building this mosaic– the government is attempting to show that there were others in this organization, in senior management, who knew of the possibility that an SEC investigation leading to Enron could have a serious impact.

And therefore, they implemented what they called document destruction/retention policy and notified Houston that the policy ought to be implemented. So I think again, the mosaic is falling into place. Whether it will have an impact on this jury, no one can tell until there is a verdict.

GWEN IFILL: Kurt, there seems to have been some friction in the courtroom between the judge and the Andersen attorney, Rusty Hardin. What was the source of that?

KURT EICHENWALD: Calling that friction is like calling the Chicago fire a small blaze. Mr. Hardin is quite the showman. He has made it very clear that he believes this prosecution is improper, is wrong, and he has done everything he can to let the jury know that– to let the jury know that through his questioning, to let the jury know that by objecting to the judge’s refusals to allow him to ask certain questions. And the judge has gotten very angry about it. And she had a bit of a blow-up with Mr. Hardin on Thursday where she called certain things he was trying to do underhanded. He responded, you know, "Go ahead, keep the truth from the jury."

The next day, in front of the jury, the judge called a bench conference and he responded, you know, "Oh, please, let’s not have one. Nothing good ever comes of those." It’s the kind of behavior I haven’t seen very often, in a criminal case. But in a way, I think Mr. Hardin is trying to convey to the jury this impression that Andersen is up against a Goliath, that it’s the government versus Arthur Andersen. I have no idea if that’s effective or not.

GWEN IFILL: Well, we’ll be watching to see. Kurt Eichenwald and Ira Sorkin, thank you very much for joining us.