Thank you for sharing!

Your article was successfully shared with the contacts you provided.
Arthur Andersen’s defense case in its obstruction of justice trial began slowly on May 27, but picked up steam as the fourth week of the trial wore on amid continuing skirmishes between prosecutors and defense counsel. The first witness for the defense, Andersen partner Richard Corgel, the North American managing practice director, testified that the firm’s document retention policy is aimed at ensuring work paper files are complete and fully supported, and unnecessary confidential client documents are destroyed. But later, under cross-examination, Corgel testified the policy is a tool to keep potentially harmful extraneous documents away from plaintiffs’ lawyers who often use them to “make accusations or cause harm.” “I found our clients and ourselves attacked on very small items taken out of context,” Corgel testified on May 28 under cross-examination by federal prosecutor Andrew Weissmann, a special attorney on the Enron Task Force. But testimony by subsequent witnesses did more to bolster the defense’s argument that the destruction of Enron Corp.-related documents and e-mails at Andersen was no more than an attempt to follow the firm’s document retention and destruction policy. The indictment against Andersen alleges the firm obstructed justice by destroying documents from Oct. 10 through Nov. 9, 2001, in Houston, Portland, Ore., Chicago and London, and alleges some individuals corruptly persuaded Andersen personnel to destroy documents with the intent of withholding them from official proceedings. In particular, testimony on May 29 from two Andersen witnesses from the Portland office supports the defense argument that the government acted rashly in deciding to speedily indict the accounting firm for destroying documents from the firm’s audit for Houston’s Enron. Andersen partner Tim McCann and manager Shane Philpot, who were both working on the audit engagement for Enron subsidiary Portland General Electric, testified that no one from the Enron engagement team in Houston ever told them to destroy any documents. They also testified that when they received a copy of a voice mail sometime in October from a manager on the Enron engagement, reminding them of the document retention and destruction policy, they decided to retain all documents and e-mails for prudence’s sake. That testimony counters the wording of the indictment, which says Andersen personnel in Portland were given instructions “to make sure that Enron documents were destroyed there as well.” McCann said he and Philpot “didn’t go through the retention policy item-by-item and decide what to do. We made it based on our judgment at the time and decided to retain what we had.” And Andersen partner Michael Jones, who was working on the Enron audit in the London office, says he was never told by anyone from Andersen to destroy documents. “Did they at any time suggest to you you ought to get rid of any documents to keep them from the SEC?” lead defense lawyer Russell “Rusty” Hardin Jr. asked Jones. “No,” the witness replied. “The only thing I recall is a reference we should be in accordance with the document retention policy,” Jones said. “I took it to mean … to make sure our work papers are finalized and complete and we should not retain extraneous information.” “Did you view it as an attempt to get rid of documents others would want to see?” Hardin asked. “No,” Jones said. Hardin, a partner in Rusty Hardin & Associates of Houston, elicited similar responses from a succession of Andersen partners and employees who took the stand during the fourth week of the trial that began on May 6 in Houston. Prosecutors wrapped up their case with lengthy testimony from FBI agent Paula Schanzle, who looked at many of the documents produced to the government by Andersen. But Hardin’s cross-examination undercut much of her earlier testimony. Schanzle testified on May 24 that lawyers for Andersen produced about 30,000 e-mails that had been deleted and later recovered. She also said the majority of the e-mails she looked at were “somehow” related to Enron. But under cross-examination on May 27, Schanzle couldn’t say how many of the documents she personally examined, other than saying it was more than half of them, and she couldn’t say specifically how many were somehow related to Enron. Weissmann is trying the case with Samuel Buell and Matthew Friedrich, special attorneys on the Enron Task Force. The defense case is focused in part on convincing the jury that any destruction of Enron documents in October and November 2001 — as Enron’s stock price tumbled and the SEC began an informal inquiry into its financial reporting — was routine. Three managers working on the Enron engagement in Houston testified that while they were told on Oct. 23 to make sure to comply with Andersen’s document retention and destruction policy, they were not told it was part of any effort to keep material from the SEC, which had by that time opened an informal investigation into Enron’s financial reporting. “I took it as I needed to review my files … for drafts, personal e-mails, duplicate memos, incomplete memos,” said John Boudreaux, who noted he spent an hour or so cleaning up his files. He also said he deleted a number of e-mails from his computer, including personal messages and correspondence for his fantasy football league. He characterized the Oct. 23 meeting of partners and managers, where David Duncan, the lead partner on the Enron engagement, asked them to comply with the document retention and destruction policy, as a “pep rally.” Jennifer Stevenson, another manager on the Enron audit who was at the Oct. 23 meeting, said she didn’t personally start working on her files until several days later because she was so busy. But Stevenson said she believed the goal of Duncan’s directive was getting the work papers in order, and compliance with the policy was not aimed at keeping documents from the SEC. Testimony from the first witness for the defense was more problematic for the defense case, as the long-winded Corgel testified that some of the reasoning behind the firm’s document retention and destruction policy is to keep potentially harmful documents away from plaintiffs lawyers. Corgel, who was one of a small number of Andersen partners who participated in a series of conference calls in October 2001 about accounting on the Enron audit, said in-house lawyer Nancy Temple never directed anyone during the calls to get rid of specific documents. He said he would have stepped in and said something if that were the case. Corgel also said he did not receive a copy of the e-mail in-house lawyer Temple sent to Michael Odom, the practice director in Houston, on Oct. 12 that reminded him about the firm’s document retention and destruction policy. Prosecutors have alleged the Temple e-mail was a coded message to destroy Enron-related documents to keep them from the SEC. But Corgel said he views the wording of the e-mail as “neutral.” “Had I received that at the time I would have felt this is an interesting reminder of our policy. I wouldn’t have thought it was instructing me to destroy documents,” Corgel said under cross-examination by Weissmann. Yet Corgel said that by Nov. 1 or Nov. 2 he had concluded “our work papers would be of interest to others” because Andersen partners had concluded Enron would need to restate its earnings. But, he said, “there was absolutely no attempt on my part or absolutely anyone I was associated with to keep documents away from the SEC.” Testimony on May 30 from Emily Madison, a former Andersen partner, cast another light on the meaning of some comments about the firm’s document retention and destruction policy that Odom, the practice director for Houston, made at an Andersen training session on Oct. 10. According to a videotape of that meeting, which was shown to jurors, Odom stressed that documents can’t be destroyed if litigation is filed, but “if it’s destroyed in the course of the normal policy and litigation is filed the next day, that’s great.” While Odom hasn’t testified, Weissmann suggested in questioning on May 30 the practice director mentioned the policy at the training session because of his concerns about Enron. But Madison’s testimony suggests Odom might have had something else on his mind. She said that a partner she worked with on another audit messaged Odom on Oct. 8 with a question on how to apply the policy. Their client, which was not identified in court, had terminated Andersen in August 2001, and Madison was trying to finish up the work papers from the audit and store them. “Is there any reason we should retain any documents outside of the office copies and coded audit files,” partner William Strait asked Odom in the e-mail on Oct. 8. In a reply that day, Odom said to follow the firm’s document retention and destruction policy. “We have no need to retain anything else,” he wrote. INTO JUNE Government prosecutors rested their case on May 27, three full weeks after the trial began. Hardin says he expects to rest by the end of the day on May 31 after putting a total of 13 witnesses on the stand, pushing rebuttal, final arguments and jury deliberations into June. Andersen was indicted on March 14 on obstruction of justice charges for destroying Enron-related documents. Prosecutors allege the destruction took place at a time when Andersen knew the SEC had opened an informal investigation of Enron. Although the government put on 14 witnesses, the key witness in the case was Duncan, the engagement partner on the Enron audit, who told others on the engagement team to follow the firm’s document retention and destruction policy. In April, Duncan pleaded guilty to obstruction of justice and testified for the government. The father of three young daughters faces a sentence of up to 10 years in prison, but he could receive a reduced sentence for his testimony. LOADING TRUNKS Prosecutors made much of some e-mails sent by Chad DeJohn, an Andersen information systems employee working on a temporary project at Enron in October 2001, in which he gave workers in his group a deadline of Oct. 29 to purge their files of extraneous Enron-related material. DeJohn testified he got the sense from his supervisor that it was a priority for workers in their group to ensure their files were in compliance with the document retention policy. That led him to send an e-mail on Oct. 24 setting a deadline of Oct. 29 to clean up the files. But DeJohn testified his motivation wasn’t to destroy documents to keep them from the SEC; he said he wanted to impress his supervisors. “I was responsible for the project. I wanted to make sure it got done. I was up for manager, so I wanted to make sure all my projects got done right,” he said. Prosecutors did elicit testimony that illustrated the scope of the document destruction in the days after Oct. 23, when Duncan told others on the engagement to make sure to comply with the firm’s document retention and destruction policy. Stevenson, now a former manager of the Enron audit, testified that after the Oct. 23 meetings, she noticed a number of people around the file cabinets in the open areas and saw people removing items and putting them in trunks. Boudreaux also testified he noticed a lot of people loading trunks with papers during that time. Stevenson said she didn’t personally work on her files until a few days after the Oct. 23 meeting because she was too busy, and only got through about 75 percent of them before Nov. 9 when Andersen received a subpoena from the SEC. HUGS AND MISSES Hardin’s allegation early in the trial that prosecutors have been scaring off some witnesses by threatening them with charges resurfaced during the fourth week, with lawyers engaging in a heated argument before U.S. District Judge Melinda Harmon on May 29. Hardin initially objected when Buell asked Stevenson if she was threatened or asked to change her story when she was interviewed by prosecutors and government agents prior to the trial. Stevenson testified she was not threatened and was not asked to change her story. But later, outside the presence of the jury, defense lawyer Denis McInerney complained about it, telling Harmon that if the prosecutors get to ask witnesses questions that imply the government is OK because they treated some witnesses right, then the defense should be able to ask similar questions to all witnesses. “They obviously don’t want to do it,” said McInerney, a partner in Davis, Polk & Wardwell in New York. But prosecutor Weissmann said the government’s questions are relevant because “I guarantee” Hardin will argue in his summation that Duncan was coerced into pleading guilty to obstruction. Duncan testified he didn’t think he did anything wrong in the fall of 2001 when he directed others to follow the document retention policy, but said he came to realize he violated the law after he began to read the law and met with government agents several times. Weissmann said the prosecutors need to ask some witnesses how they were treated during their interviews with government agents because they won’t be able to question two key witnesses — Temple and audit partner Thomas Bauer — who took the Fifth Amendment. “We can’t call Mr. Bauer because he took the Fifth. We can’t call Ms. Temple because she took the Fifth. We have to do it to witnesses on the stand [and ask], ‘How did the government treat you?’ ” he said. Hardin, jumping into the argument, said it’s absolutely true that some Andersen people who would have been good witnesses for the defense took the Fifth because prosecutors notified their lawyers their status had been changed from witness to subject, putting them in jeopardy of indictment. One is former Andersen manager Kate Agnew, who took the Fifth Amendment during the first week of trial. Weissmann countered, saying government questions about how witnesses were treated is fair game, and “if they want to go into that, fine.” He said the prosecution has an obligation to tell a witness’ lawyer if prosecutors believe the witness isn’t being honest. In Agnew’s case, Weissmann said, she gave some implausible information when describing why Duncan told a group of partners and managers on the Enron audit team on Oct. 23 to follow the firm’s document retention policy. Weissmann told Harmon that Agnew told government agents the audit team was asked to follow the document policy because of the impending arrival of a new partner on the account. He said that because that partner didn’t arrive until mid-November, Agnew’s answer was “just couldn’t be the reason.” Hardin says, however, that’s not the full story. He says the government is suspicious of Agnew simply because she had written “SEC” in her notes from the meeting, where she was told about the informal inquiry into Enron that had been opened before that Oct. 23 meeting. The issue came up again on May 30 when Weissmann asked for a ruling because he wanted to ask Jones, the London partner, about his treatment during interviews with agents. Hardin vehemently argued against it. He said asking a witness like Jones about his treatment by the government results in a “commercial” for the government. But Harmon ruled she would allow it, and Jones testified he was not threatened, asked to change his testimony, or told he could face accounting fraud charges and face 80 years in prison. In response, Hardin asked Jones if the interview by government agents was “warm and wonderful.” “Did they hug you goodbye?” Hardin asked. Harmon warned against any hugging. BAD HABITS Hardin may be spreading his bad habits to the prosecutors. Throughout the trial, prosecutors have objected to questions posed by Hardin on the grounds they inappropriately contain jury argument. Harmon has been sustaining those objections. Those objections have been less frequent since May 18, when Harmon signed an order limiting Hardin’s behavior in court, including a limit on that style of question in the presence of the jury. But on May 28, Harmon cautioned Hardin, saying, “Mr. Hardin, you are arguing to the jury. I don’t want you to slip back into these bad habits.” “Your honor,” Hardin replied, “I’d like the record to reflect we disagree whether it’s a bad habit.” By May 30, the tables were turned when Hardin objected to one of Weissmann’s questions on the ground it contained argument. Harmon called the lawyers up to the bench to discuss the objection. According to Hardin, Harmon jokingly suggested Weissmann is picking up his bad habits. PASSING A NOTE Hardin’s attempt to have a little fun in the courtroom didn’t go over well with prosecutors. The defense’s first witness, Los Angeles-based partner Corgel, was spending hours on the witness stand, mostly because Weissmann was asking him a lot of questions, but also because he gave long answers. Even when a question called for a yes or no answer, Corgel usually elaborated. Toward the end of a long morning of cross-examination on May 28, Hardin, over the objections of others on the defense team, passed a folded yellow note to one of Corgel’s lawyers sitting in the courtroom. Hardin says the lawyer returned it to the defense team at the lunch break without reading it. But before the jury was brought back into the courtroom after the lunch break, Buell complained to Harmon about the note. Hardin jumped up, telling the judge it simply characterized the prosecutors as a “humorless lot.” He said it also suggested that if the prosecutors had spent as much time investigating the case as they did on the details of Corgel’s cross-examination, Andersen wouldn’t be in court defending itself. STYLIN’ A major development in the case occurred on May 28, when Hardin wore his first lawyerly outfit of the trial — a black blazer and cream-colored slacks. He did add a pastel pink and blue tie to the ensemble, which was more in keeping with his daily courtroom attire. He’s been wearing suits and jackets ranging in color from tan to taupe to sage green to winter white. He favors yellow and gold ties. In contrast, at least two of the prosecutors, and usually all three, wear dark suits each day along with conservative ties. The jury shows up for court dressed well, with several of the nine men on the jury wearing suits and ties each day and the women wearing professional clothes to court. No one, even Hardin, has worn a seersucker suit, the ultimate hot-weather attire still popular with many lawyers in Houston. But then again, the temperature in the courtroom ranges from chilly to downright cold. NEED A VACATION Despite a protest from Hardin, who is a veteran, Harmon scheduled court for Memorial Day. The trial has already run long — it was supposed to end by May 29 so Harmon could leave for a long-scheduled vacation — and Harmon has kept jurors until 6 p.m. on some days to speed matters along. So it was unusual when a 10-minute break during the morning of May 30 stretched into an hour and 20 minutes. When Harmon returned to the courtroom shortly before noon, she apologized for the delay but said it was because her diabetic son had been lost for three hours in the airport in Rome. He was found, the relieved judge told the lawyers and spectators before releasing everyone for the lunch break.

This content has been archived. It is available through our partners, LexisNexis® and Bloomberg Law.

To view this content, please continue to their sites.

Not a Lexis Advance® Subscriber?
Subscribe Now

Not a Bloomberg Law Subscriber?
Subscribe Now

Why am I seeing this?

LexisNexis® and Bloomberg Law are third party online distributors of the broad collection of current and archived versions of ALM's legal news publications. LexisNexis® and Bloomberg Law customers are able to access and use ALM's content, including content from the National Law Journal, The American Lawyer, Legaltech News, The New York Law Journal, and Corporate Counsel, as well as other sources of legal information.

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 © 2021 ALM Media Properties, LLC. All Rights Reserved.