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David Duncan, the government’s key witness in Arthur Andersen’s obstruction of justice trial, testified Wednesday he believed he did nothing wrong by asking employees to destroy Enron Corp. documents, even at a time when he knew the Securities and Exchange Commission was investigating Enron’s financial reporting. Duncan said he maintained that belief even after Andersen notified him Jan. 15 that he was being fired. He said he felt that way when meeting with government agents, including prosecutors, on Jan. 14 and 16, and when meeting with congressional staffers Jan. 15. But Duncan testified he began to have second thoughts sometime in late January or February, and he first shared those misgivings privately with his family. He said he engaged in “a lot of soul searching of what was in my head, my intent at the time.” Duncan said he was having those private second thoughts at the time his attorneys signed a joint defense agreement with Andersen on March 20. It was sometime during February, he said, that he was informed that his status before the Department of Justice had changed from “witness” to “target.” He said government agents first told him sometime in February that they believed he had committed a crime. Duncan testified it was sometime after he met with prosecutors on March 21 that he decided he would plead guilty for the document destruction. The testimony about Duncan’s state of mind is crucial for defense attorney Russell “Rusty” Hardin Jr. of Houston, who would help Andersen’s defense by making the jury believe Duncan changed his story under threat of prosecution. Duncan, the former lead auditor on the Enron account, is testifying for the government after pleading guilty April 9 to a charge of obstruction of justice. His sentencing is delayed until after the trial. Prosecutors contend Andersen, Enron’s former accounting firm, obstructed justice because the firm destroyed Enron documents at a time the firm knew Enron was under investigation by the SEC. Duncan first took the stand Monday, and Assistant U.S. Attorney Andrew Weissmann wrapped up his direct questioning at about 9:30 a.m. Wednesday. Duncan testified Monday that he pleaded guilty to obstruction and said he asked employees to follow the firm’s document retention and destruction policy knowing it would lead to the destruction of documents. Duncan testified Tuesday that he asked Andersen employees on the Enron engagement team to follow the firm’s document retention and destruction policy. He said he issued that directive on Oct. 23, which was after he found out the SEC was investigating Enron and after he received a forwarded e-mail from in-house lawyer Nancy Temple that contained a link to the firm’s document retention and destruction policy. Duncan testified Wednesday that he asked employees to stop destroying documents on Nov. 9, which was after Andersen received a subpoena from the SEC for Enron-related documents. He said that during that late October period he believed it was OK to destroy extraneous documents because Andersen had neither been sued nor subpoenaed. He wrapped up his direct testimony by saying no one at Andersen told him prior to Nov. 9 to stop following the document policy or to stop destroying documents. However, Duncan testified later during cross-examination that he did receive a voice mail from Temple late on Nov. 8 informing him of the subpoena from the SEC. He also received an e-mail from Temple on Nov. 9, and after that he informed the Andersen employees at Enron to stop destroying documents. “I told them they needed to stop anything they were doing,” he said. Duncan also testified about a series of meetings with government agents. The 43-year-old Duncan testified on cross that government agents contacted him around Christmas in 2001 about meeting with them. He said he understood at that time the meeting would concern Enron’s accounting, but he said it turned out that “a fair period” of the five- to six-hour session on Jan. 14 dealt with Andersen’s document destruction. “It was the first issue we discussed,” Duncan said. Four days earlier, Andersen had announced the massive destruction of Enron documents. Duncan testified that even when Andersen’s indictment for obstruction of justice was made public March 14, he wasn’t convinced he had committed a crime. “I’m struggling with the date, but I will say that yes, I had not 100 percent concluded at that date that in my mind I had committed a crime,” he said. He remained unconvinced on March 20, when his lawyers signed a joint defense agreement with Andersen’s lawyers, and by March 21, when he again met with prosecutors and FBI agents. But on April 5, Duncan said he came to terms of a plea agreement with prosecutors and signed it on April 6. The agreement calls for him to testify truthfully but says prosecutors can ask the judge who sentences him to depart from sentencing guidelines. He said that while the maximum sentence is 10 years in prison for obstruction of justice, he understands he could receive probation. Hardin also asked him if government agents ever brought up tax matters during their meetings. Duncan testified he did tell them he is somewhat concerned about the tax paperwork for the nanny he and his wife employ. The couple has three daughters, ages 3, 6 and 8. “I was asked at one point if I had any other issues that I thought I should bring to the attention to the government,” Duncan said. “I don’t know that I thought it was Nannygate,” Duncan said in response to a question from Hardin. “I know we had paid our taxes. I wasn’t sure if all of the relevant forms were in order.” He said he was told by government agents to get the paperwork in order. Hardin also suggested in questioning that by pleading guilty to obstruction of justice, Duncan avoided possible prosecution for fraud, which carries a higher possible sentence. Hardin tried to help Duncan characterize the situation. “You were in the middle of a nightmare, weren’t you?” Hardin asked. “This has not been my favorite year,” Duncan replied. Brenda Sapino Jeffreys is a senior reporter with Texas Lawyer , a division of American Lawyer Media and an affiliate of law.com.

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