Arthur Andersen auditor: I obstructed justice

HOUSTON — David Duncan, the former chief outside auditor of Enron, told a federal jury yesterday that he knew he had committed a crime when he instructed his colleagues at Arthur Andersen to destroy documents as their energy client collapsed.

"I obstructed justice," testified Duncan, the government's key witness in the trial of his former company. "I instructed people on the engagement team to follow a document-retention policy which I knew would result in the destruction of documents."

Arthur Andersen fired Duncan in January after an internal probe revealed the company shredded documents and deleted e-mail messages related to Enron. He pleaded guilty to a single count of obstruction of justice, under a plea agreement that could result in up to 10 years in prison.

Duncan's testimony is damaging to Arthur Andersen's case because the accounting firm must prove that Duncan did nothing wrong even though he has pleaded guilty. A partnership can be found criminally liable for the acts of one of its partners.

During opening arguments last week, an Arthur Andersen attorney said that the firm was not trying to hide anything from the government but was trying to get papers in order for the Securities and Exchange Commission (SEC). He suggested Duncan was pressured to plead guilty and that in early statements Duncan told investigators he had done nothing wrong.

The firm is facing a single charge of obstruction of justice for destruction of the documents after its employees learned of a federal investigation last fall. Until the Enron scandal, Arthur Andersen had 85,000 employees worldwide and thousands of clients. Now it is fighting for its survival as clients and employees depart. A conviction would prohibit the firm from auditing publicly traded companies unless it received an SEC waiver.

Duncan, who worked at Arthur Andersen for 20 years, said Enron was one of its five biggest clients, generating more than $58 million in revenue last year. Enron filed for bankruptcy protection in December after trouble with its complex financial partnerships came to light and is facing scrutiny from Congress, the SEC and federal prosecutors.

Much of the testimony at the trial has touched on Arthur Andersen's document-retention policy, which calls for keeping material considered important to projects and destroying documents and items considered unnecessary.

Arthur Andersen lawyer Nancy Temple sent an e-mail reminding workers of the policy on Oct. 12 — five days before the SEC opened an inquiry into Enron.

And in an Oct. 26 e-mail, Arthur Andersen partner C.E. Andrews fretted that the firm could be "in the crosshairs" of the SEC if the regulatory panel decided to get tough on accounting firms. The message also discussed how to manage a worst-case scenario involving the firm and federal regulators.

However, partners Amy Ripepi and James Green both testified yesterday that they did not think the reminders were designed to induce employees to destroy Enron-related materials.

Information from The Associated Press is included in this report.