Investigating Enron

KWAME HOLMAN:

David Duncan once was the Arthur Andersen accounting firm's chief auditor for energy trader, Enron. Now, Enron is bankrupt, and Duncan was fired by Andersen for allegedly overseeing the shredding of Enron-related financial documents. He was the star witness this morning at a House investigations committee's opening hearing on the Enron matter. Members already knew Duncan likely would refuse to testify. Nonetheless, Chairman Jim Greenwood, Republican of Pennsylvania tried to make the case why Duncan should tell everything he knows.

REP. JIM GREENWOOD, (R) Pennsylvania: Mr. Duncan, Enron robbed the bank. Arthur Andersen provided the get-away car and they say you were at the wheel. I have a specific question for you, Mr. Duncan. You were fired by Andersen last week for orchestrating an expedited effort among the Andersen-Enron engagement team to destroy thousands of paper documents and electronic files relating to the Enron matter, after learning of an inquiry by the Securities and Exchange Commission into Enron's complex financial transactions. Did you give an order to destroy documents in an attempt to subvert governmental investigations into Enron's financial collapse, and if so, did you do so at the direction or suggestion of anyone at Andersen or at Enron?

DAVID DUNCAN, Former Andersen Partner:

Mr. Chairman, I would like to answer the committee's questions but on the advice of my counsel, I respectfully decline to answer the question based on the protection afforded me under the Constitution of the United States.

REP. JIM GREENWOOD:

Will you invoke your Fifth Amendment rights in response to all of our questions here today.

DAVID DUNCAN:

Respectfully, that will be my response to all your questions.

REP. JIM GREENWOOD:

I'm disappointed to hear, that but it is therefore, the chair's intention to dismiss the witness. Mr. Duncan, we thank you for your attendance today and your respect for this committee's process. You are dismissed and perhaps we'll see you on another occasion.

DAVID DUNCAN:

Yes, sir.

KWAME HOLMAN:

Committee members said they hope Duncan will testify at a later hearing. At that point, the committee swore in four other Arthur Andersen officials who had agreed to testify. Director of professional standards Dorsey Baskin gave the justification for firing Duncan, and said the firm still is investigating exactly who shredded Enron documents, and why.

DORSEY BASKIN, Andersen Senior Official:

We know that on October 23, just six days after the SEC requested information from Enron, David Duncan, Andersen's lead partner on the Enron engagement, called an urgent meeting of the Enron engagement team, at which he organized an expedited effort to shred or otherwise dispose of Enron- related documents. This effort was undertaken without any consultation with others in the firm or, so far as we are aware, with legal counsel. Over the course of the next several days, a very substantial volume of documents and e-mails were disposed of by the Enron engagement team. This activity appears to have stopped shortly after Mr. Duncan's assistant sent an e-mail to other secretaries on November 9, the day after Andersen received a subpoena from the SEC telling them, "No more shredding." Once this activity came to light, Andersen's response was immediate. Andersen notified the Department of Justice, the SEC, and all relevant congressional committees. At the same time, the firm suspended its records-management policy and asked Former Senator Danforth to conduct an immediate and comprehensive review. Although the firm was well aware of the potentially devastating impact this disclosure could have on our reputation, we did the right thing. We certainly are not proud of the document destruction, but we are proud of our decision to step forward and accept responsibility.

KWAME HOLMAN:

But Chairman Greenwood pressed another Andersen official, C.E. Andrews, on the document shredding.

REP. JIM GREENWOOD:

No one in Arthur Andersen has ever said, "Mr. Duncan told me to destroy documents." Are you aware of any employee who said, "Mr. Duncan told me to destroy documents"?

C.E. ANDREWS, Andersen Senior Official:

I do not know the answer to that. Again, once the investigation is completed…

REP. JIM GREENWOOD:

Well, but you said… The Arthur Andersen press release says, it asserts that Mr. Andersen… Mr. Duncan conducted himself using poor judgment, in violation of policy. My question is, How did Arthur Andersen come to that conclusion when you've not… You've not indicated that either he admitted it; he came forth and he said, "You know what I did. I broke the rules. I don't know what got into me. I started telling people to destroy document." And you have not said, "And by the way, these are the employees who destroyed documents pursuant to Mr. Duncan's direction, and that's why we fired the guy."

C.E. ANDREWS:

Let me clarify. Mr. Duncan conducted a meeting that…

REP. JIM GREENWOOD:

Let me just clarify before you clarify. The Andersen press release says, "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." So how did you learn that?

C.E. ANDREWS:

It was learned as a result of interviews with Mr. Duncan and others.

REP. JIM GREENWOOD:

So he said it? Mr. Duncan said, "I led an expedited effort to destroy documents."

C.E. ANDREWS:

No. That's not what I'm saying, Mr. Chairman. What I'm saying is that he conducted a meeting with a group of the engagement team with the policy.

REP. JIM GREENWOOD:

How do you know that? How do you know he did that?

C.E. ANDREWS:

Through the interviews that we have conducted.

REP. JIM GREENWOOD:

With whom?

C.E. ANDREWS:

With our investigators.

REP. JIM GREENWOOD:

No, no. Who did the investigators query?

C.E. ANDREWS:

Mr. Duncan, as well as others.

REP. JIM GREENWOOD:

And who are the others?

C.E. ANDREWS:

I don't have the information on the others. The investigation…

REP. JIM GREENWOOD:

We'll need to know who those others are.

KWAME HOLMAN:

Republican Billy Tauzin, chairman of the full Energy Committee, chastised Andersen officials for waiting too long before ordering employees to preserve all Enron- related documents.

REP. C.W. "BILLY" TAUZIN, Chairman, Energy & Commerce Committee: Any one of you please tell me, on behalf of Arthur Andersen, when you thought it was wrong to destroy any more documents. Does anybody have to raise it, or is it somebody's responsibility in the company to say, "Stop destroying documents. We're under investigation." Whose responsibility was it if not yours? Did somebody have to raise it? Whose responsibility, Mr. Andrews? Was it your President? Who was it?

C. E. ANDREWS:

In our policy, that responsibility… the policy that we're revising, and I acknowledge we're revising, in that policy the responsibility is with the engagement party.

REP. C.W. "BILLY" TAUZIN: An accountant, not a lawyer? You give the responsibility to an accountant to decide whether it's legally permissible to destroy documents relative to a proceeding? Let me just tell you, I don't know what's going to happen out of all this, I really don't. I hope you're all okay, I don't know. But I'll tell you this, every accountant firm who's listening to this had better listen very carefully. If all of your policies are to let accountants decide when it's legal to destroy documents in a pending investigation, an awful lot of people are going to be in trouble down the road, not just in this case.

KWAME HOLMAN:

Even as the House hearing was under way, the Senate Governmental Affairs Committee focused on what could be done to prevent another Enron. The committee's lead witness the committee's lead witness was Arthur Levitt, former chairman of the Securities and Exchange Commission. He blamed profit pressures for Enron's collapse.

SEN. JOSEPH LIEBERMAN:

This hearing will come to order.

ARTHUR LEVITT, Former Chairman, Securities & Exchange Commission: Enron's collapse did not occur in a vacuum. Its backdrop is an obsessive zeal by too many American companies to project greater earnings from year to year. When I was at the SEC, I referred to this as a "culture of gamesmanship," a gamesmanship that says it's okay to bend the rules, to tweak the numbers, and let obvious and important discrepancies slide; a gamesmanship where companies bend to the desires and pressures of Wall Street analysts, rather than to the reality of numbers.

KWAME HOLMAN:

Committee chairman Joseph Lieberman asked Levitt if government regulators should have been more vigilant.

SEN. JOSEPH LIEBERMAN:

If the laws and agencies were better prepared, could we have protected a lot of the people who were hurt by Enron's collapse?

ARTHUR LEVITT:

I've thought about that very question many times. And I think it's another case of the nail in the shoe of the horse. Any of the elements around, the rating agencies, the standard setters, the regulators, the boards, the auditors, at different points in time could have blown the whistle, could have turned up what a sham this really was.

KWAME HOLMAN:

Fred Thompson, the ranking Republican on the committee, followed up by zeroing in the role of Wall Street analysts who continued to recommend Enron stock to investors even as bad news mounted.

SEN. FRED THOMPSON, (R) Tennessee: What in the world were these analysts looking at when they made these buy recommendations? Was their desire to be deceived so great that they refused to look at the facts before them? Or were the transactions so complicated that they just couldn't figure it out?

ARTHUR LEVITT:

An analyst, I've found, hates to prove himself wrong. So if an analyst is recommending a stock at 80 and it goes to 60 and 50, boy, it was a good buy then. It's a better buy now. You know, Senator, you said something, which struck me as critically important as we work through this process over the course of coming weeks and months. You said that real scandal is not what is illegal, but what is permissible. And certainly with respect to analysts, with their conflicts hidden from view, that is one of many examples that resonates to that statement of yours.

SEN. FRED THOMPSON:

Can an American investor today depend on Wall Street analysts?

ARTHUR LEVITT:

I think Wall Street sell-side analysis has lost virtually all credibility. So much of the revenues of firms depend upon investment banking, that the importance of the analyst who acquiring and maintaining an investment banking relationship becomes a primary concern.

KWAME HOLMAN:

Congressional investigators are just beginning what promises to be a long examination of the collapse of Enron.