X

Thank you for sharing!

Your article was successfully shared with the contacts you provided.
If Arthur Andersen engaged in a massive effort to hide information from the Securities and Exchange Commission by destroying Enron Corp. documents, it was an incredibly inept conspiracy run by unknown corrupt perpetrators, Andersen’s lawyer told jurors Tuesday. Houston lawyer Russell “Rusty” Hardin Jr. said the government embarked on a “rush to judgment” when indicting Andersen on March 14 for obstruction of justice. The government alleges the destruction from Oct. 10 to Nov. 9 took place at a time when the firm knew the SEC was beginning to investigate Enron’s financial reporting. Hardin said the government’s search for “corrupt perpetrators” at Andersen is like a search for the “Where’s Waldo?” character in the pages of a children’s book. The feisty defense attorney said he doesn’t even know for sure if David Duncan, the former Andersen accountant who pleaded guilty to obstruction and will testify for the government at trial, is the corrupt perpetrator the government says is responsible for the document destruction. “Is he [Duncan] the corrupt perpetrator? Are there other corrupt perpetrators? Where’s Waldo?” Hardin asked during opening statements of Andersen’s obstruction trial, which began Monday in federal court in Houston. But Matthew Friedrich, an Assistant U.S. Attorney, told jurors that “a simple series of choices” by a small group of partners at Andersen to keep documents and e-mails out of the hands of law enforcement led the Chicago-based accounting firm to indictment. “That small group of partners saw a window of opportunity,” he said. Friedrich told the 12 jurors and four alternates that the Andersen engagement team working on the Enron account consistently advocated risky accounting decisions when doing work for Enron. He suggested some of its members were getting too close to the large client. The decision to begin destroying the documents came as Andersen was under probation with the SEC because of a consent decree stemming from its work for Waste Management Inc. Because of that probation, the accounting firm could face penalties from the SEC, including a loss of its right to certify audited financials. “That became a game that they would play, to get rid of these documents so when the SEC showed up, or the lawsuits showed up … [it would be] too late,” Friedrich said. Friedrich said an e-mail message from Andersen in-house lawyer Nancy Temple to a partner in Houston, suggesting employees follow the firm’s document retention and destruction policy, was a coded message to get rid of possibly incriminating documents. “These people were smart and cautious,” he said. Andersen’s criminal trial kicked off less than two months after it was indicted. The trial is expected to finish up by May 29, when U.S. District Judge Melinda Harmon goes on a long-scheduled vacation. Harmon told the jury panel Monday, however, she would miss the start of her vacation if necessary. Although Duncan’s testimony is expected to be the turning point of the trial, the prosecution began its case by putting SEC official Thomas Newkirk on the stand Tuesday. Newkirk, associate director of the division of enforcement in Washington, D.C., testified about recent investigations into the financial reporting of two prior Andersen clients, Sunbeam and Waste Management Inc. Because of a consent decree in 2001 in the Waste Management matter, Andersen is permanently barred from violating securities laws in the future. “Every partner at Arthur Andersen is subject to the terms of that injunction, everyone who operates as a partner at Andersen,” testified Newkirk, an attorney. Before opening arguments Tuesday, Harmon ruled that prosecutors could introduce evidence about those SEC investigations. She denied a motion filed by defense attorneys that would have excluded that testimony on the ground it did not meet the requirement of Federal Rule of Evidence 404 (b), which allows some testimony of “bad acts.” Although Hardin argued that the evidence would be prejudicial — and he objected throughout Newkirk’s testimony — Harmon said, “The prohibitive value outweighs the prejudice.” She said it is relevant to intent and motive. “It’s difficult to delve into the mind of a person, let alone a partnership,” Harmon said. ANONYMOUS JURY A jury of nine men and seven women, including four alternates, will decide the case. The group showed up well dressed for the opening statements, with most of the men in suits and ties. Jurors were selected Monday from a panel of 106 residents of the Southern District of Texas, an area that ranges far from Harmon’s downtown Houston courtroom. Andersen’s indictment is the first to come out of the Department of Justice Enron Task Force investigating the collapse of Enron, which filed a Chapter 11 in December following a financial meltdown that saw its stock plunge to pennies a share. The jury was selected after a full day of voir dire conducted by Friedrich for the prosecution, and Hardin, of Rusty Hardin & Associates, for the defense. Questioning by Hardin, a former state prosecutor in Houston, led to the dismissal Monday of 10 jurors for cause. Prior to voir dire, prospective jurors had already filled out a questionnaire. Hardin had complained to Harmon at a pretrial hearing April 26 that too many prospective jurors indicated they had already made up their mind about the case. He asked for a delay of the start of the trial for six to eight weeks because of pretrial publicity, but the judge turned down his request, saying she did not believe the news coverage would lessen over the next few weeks. Both sides got an hour to question jurors during voir dire. After that, about half of the jurors in the courtroom were brought up to the bench to be questioned privately by the judge and lawyers for both sides. But questioning by Hardin brought out the feeling of other jurors, including at least a dozen who said they are angry about the Enron debacle, which led to the loss of thousands of Enron jobs in Houston. “The biggest problem I have is trying to get the anger out of me,” said one potential juror who was later struck from the panel. Hardin told the jury panel the defense team wasn’t going to say Andersen didn’t destroy the documents. But until his allotted time ran out, Hardin asked the potential jurors one by one if they would presume, unless the prosecutor proved otherwise, that the destruction of documents was done for the proper purpose. Other than the wee bit of information about some jurors that came out during voir dire, biographical information about the jurors isn’t public. Jurors are identified by numbers instead of names, and defense attorneys say they don’t know where they live. Hardin says it’s the first time he’s ever talked to an anonymous jury. It’s also the first time he’s ever defended a client without getting a witness list in advance from the other side. Except for the expected testimony of Duncan, the former lead accountant on the Enron account, prosecutors didn’t provide the defense team with the names of any witnesses until voir dire, when Friedrich read off a lengthy list of possible witnesses to potential jurors to determine if they know any of the witnesses. The list included eight witnesses Friedrich characterized as Federal Bureau of Investigation witnesses and 53 others, including in-house lawyer Temple, who sent an e-mail to Andersen’s Houston office in October warning employees of the document retention and destruction policy. At the end of the day on Monday, prosecutors told the defense team the names of the first few witnesses they intended to call. Duncan was not on tap for Tuesday. On April 9, Duncan pleaded guilty to obstruction of justice for his role in the shredding. His sentencing has been delayed until after he testifies at the trial. If convicted, Andersen faces a maximum penalty of a $500,000 fine and five years’ probation. Andersen is going to trial less than two months after it was indicted because Hardin asked for a speedy trial. On Jan. 10, Andersen announced that employees had been shredding Enron documents, and the company asked the Enron task force to conduct an expedited investigation into the document destruction. On Jan. 15, Andersen fired Duncan. By March 1, the task force informed Andersen it would seek an indictment, and despite settlement negotiations, the indictment was handed down on March 14. Brenda Sapino Jeffreys is a senior reporter at Texas Lawyer.

This content has been archived. It is available exclusively through our partner LexisNexis®.

To view this content, please continue to Lexis Advance®.

Not a Lexis Advance® Subscriber? Subscribe Now

Why am I seeing this?

LexisNexis® is now the exclusive third party online distributor of the broad collection of current and archived versions of ALM's legal news publications. LexisNexis® customers will be able to access and use ALM's content by subscribing to the LexisNexis® services via Lexis Advance®. This includes content from the National Law Journal®, The American Lawyer®, Law Technology News®, The New York Law Journal® and Corporate Counsel®, as well as ALM's other newspapers, directories, legal treatises, published and unpublished court opinions, and other sources of legal information.

ALM's content plays a significant role in your work and research, and now through this alliance LexisNexis® will bring you access to an even more comprehensive collection of legal content.

For questions call 1-877-256-2472 or contact us at [email protected]

 
 

ALM Legal Publication Newsletters

Sign Up Today and Never Miss Another Story.

As part of your digital membership, you can sign up for an unlimited number of a wide range of complimentary newsletters. Visit your My Account page to make your selections. Get the timely legal news and critical analysis you cannot afford to miss. Tailored just for you. In your inbox. Every day.

Copyright © 2020 ALM Media Properties, LLC. All Rights Reserved.