Adviser says Enron memo destruction troubled him

Saturday, June 1, 2002

HOUSTON -- An in-house Arthur Andersen LLP adviser was "bothered" by a lawyer's instruction that he destroy old drafts of memos on disputes over whether Andersen should approve problematic Enron Corp. accounting.

John Stewart, a partner for an Andersen group that advises auditors on sticky accounting issues, testified in the firm's obstruction of justice trial that he wanted to keep all the memos dealing with problem accounting practices on Enron financial statements.

"I wanted a record of it in case somebody in the firm asked me," he said Friday, his second day on the witness stand.

Stewart said Thursday that attorney Nancy Temple told him of the firm's document retention policy in late September or early October.

At that time, Stewart, who has been praised by several witnesses in the trial for his judgment, was embroiled in talks with Enron auditors over how to deal with some Enron entities named "Raptors."

Stewart said partners on the Enron audit team had mischaracterized advice from Stewart's group. He said Temple told him to keep the old memos and newer corrected ones but said to discard other drafts under the policy's guidelines.

"I was bothered about doing that," Stewart said, because he wanted his group's role in working out the problems to be thoroughly documented.

Prosecutors contend that Andersen suddenly promoted the policy in October to get rid of potentially damaging documents as the Securities and Exchange Commission began investigating Enron's finances. In December, energy-trading company collapsed in the biggest bankruptcy in U.S. history.

Policy observed

Andersen claims its employees adhered to policy that required retention of final papers supporting audit conclusions while discarding unneeded material.

Temple was among three witnesses who declined to testify when called by prosecutors.

Outside of the jury's presence Friday, Denis McInerney, one of Andersen's lawyers, asked U.S. District Judge Melinda Harmon to allow him to question a records clerk about more than 1,600 boxes of Enron-related papers now stored at the firm's Houston office. He said jurors, completing a fourth week of testimony, needed to know that despite witnesses telling of increased shredding in October, most papers were kept.

"It's critical the jury understand that context," McInerney said.

Prosecutor Andrew Weissmann said what was kept doesn't change the sudden increase in shredding in October.

"It's comparing it to what was destroyed earlier, which was almost nothing," he said.

Harmon didn't rule immediately on the request.

Also Thursday, Michael Jones, a partner in Andersen's London office who advised Enron auditors, testified that he ensured only duplicate or extraneous documents in his files were destroyed after getting a reminder of the policy.

He said former top Enron auditor David Duncan in late October instructed the staff to comply with the policy, and the small London office had stacks of excess documentation.

"I don't know if it was in response to the call, but (policy compliance) efforts were accelerated," Jones testified.

The Andersen indictment, unsealed March 14, says workers in Portland, Ore., London, Houston and the Chicago headquarters were instructed to destroy data.

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