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Federal grand jury indicts Arthur Anderson in Enron scandal

Thursday, March 14, 2002

WASHINGTON (AP) -- A federal grand jury on Thursday indicted the Arthur Andersen accounting firm in the Enron Corp. scandal, the first criminal charges in the nation's biggest bankruptcy.

The one-count indictment alleging obstruction of justice came after Andersen spurned a 9 a.m. Thursday deadline to plead guilty to charges stemming from its admitted destruction of Enron-related documents. Andersen said criminal proceedings were tantamount to a "death penalty" against the firm, and it accused the Justice Department of "a gross abuse of governmental power."

For a one-month span in October and early November, "Andersen ... did knowingly, intentionally and corruptly persuade" employees to "alter, destroy, mutilate and conceal" documents, the indictment said.

The one-count indictment alleging obstruction of justice came after Andersen spurned a 9 a.m. Thursday deadline to plead guilty to charges stemming from its admitted destruction of Enron-related documents. Andersen said criminal proceedings were tantamount to a "death penalty" against the firm, and it accused the Justice Department of "a gross abuse of governmental power."

For a one-month span in October and early November, "Andersen ... did knowingly, intentionally and corruptly persuade" employees to "alter, destroy, mutilate and conceal" documents, the indictment said.

Andersen employees "were instructed by Andersen partners and others to destroy immediately documentation relating to Enron and told to work overtime if necessary to accomplish the destruction," said the indictment.

Andersen employees engaged in "the wholesale destruction" of Enron-related materials, Deputy Attorney General Larry Thompson said.

The Justice Department brought Andersen under close scrutiny following the accounting firm's admission that it had engaged in massive shredding of Enron-related documents as the energy trading company careened toward bankruptcy last fall. Just before the shredding began, the Securities and Exchange Commission had announced it was conducting an inquiry of Enron.

"Tons of paper" were destroyed and a shredder was used "virtually constantly" to handle the contents of dozens of large trunks filled with Enron documents, the indictment said.

Now struggling for survival, Andersen was Enron's outside auditor during the years when the Houston-based energy trading company was presenting the public with a bright financial picture that showed billions of dollars in profits. In fact, huge amounts of debt were being kept off Enron's balance sheet through a web of complex partnerships set up by Enron.

Chicago-based Andersen -- one of the Big Five accounting firms -- blamed employees in its Houston office for shredding Enron-related documents late last October and early in November.

The indictment called the destruction an "unparalleled initiative to shred physical documentation and delete computer files."

Pointing to top executives, the indictment said that shortly before the destruction began, Andersen's high-level management held a conference call to discuss the SEC inquiry.

The maximum penalty is a five-year term of probation and a $500,000 fine.

"It shouldn't be a surprise to anyone that serious charges have serious consequences," Thompson said. "It would be unfortunate for a criminal justice system if any individual or any entity could say that he or she or it was too big or too important so as it couldn't be indicted."

Enron had no comment on the Andersen indictment, company spokesman Eric Thode said.

Andersen has been talking with rivals about selling some or all of its operations, but two firms, Deloitte Touche Tohmatsu and Ernst & Young announced that they were not interested. Worries about Andersen's legal liabilities for its role in the collapse of Enron were behind the decision.


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