WASHINGTON - The Justice Department has repeatedly threatened accounting firm Arthur Andersen with indictment for destroying documents in the Enron case, according to sources familiar with their negotiations over the past week to 10 days.
One possible outcome of the negotiations would be for Andersen to plead guilty to obstruction of justice for the shredding of Enron-related documents at the accounting firm's Houston office last fall.
Despite Andersen's desperate situation and its need to resolve any criminal legal problems swiftly, the accounting firm is leery about pleading guilty to a crime unless it first receives assurances from the Securities and Exchange Commission, said the sources.
The accounting firm's concern is that a guilty plea could bar it from filing reports with the SEC on behalf of the companies it audits, according to the people familiar with the discussions, who spoke only on condition of anonymity.
Negotiations were continuing between the Justice Department and Andersen. U.S. officials have indicated that no formal decision is anticipated before Thursday, when Michael Chertoff, head of the department's criminal division, is back in his office from a trip with Attorney General John Ashcroft to Trinidad.
The two sides have agreed to continue discussions this week, a source familiar with the talks said Tuesday, speaking on condition of anonymity.
Since Andersen's name is on SEC filings of all the publicly held corporations it audits, Andersen regards SEC clearance in the event of a guilty plea as vital, the people familiar with the contacts said.
The SEC had no immediate comment Tuesday; a message was left for Andersen spokesmen.
One legal expert disagreed with Andersen's position.
Duke University law professor James D. Cox saw the SEC filings as a non-issue.
"As far as bad-boy disqualifiers" for doing business at the SEC, "none of the prohibitions deal with the role that public accountants serve," said Cox, a specialist in corporate and securities law.
"If the SEC is trying to broker a settlement, which is what we keep hearing, why don't they just give Andersen the assurance?" said Cox.
"I think it's a little farfetched," added Cox. If the commission barred the firm from filing because of its status as an admitted criminal, "the commissioners would have to feel assured that the other accounting firms have excess capacity to take on the clients and, second, if there is such excess capacity, that clients could move quickly to select a new auditor."
Andersen, one of the Big Five accounting firms, already has publicly acknowledged massive shredding of Enron-related documents in its Houston office and has fired its lead Enron auditor for the document destruction. However, Andersen insists that no one at its Chicago headquarters knew about the shredding 900 miles away.
Houston-based Enron was the world's largest buyer and seller of natural gas, growing into the nation's seventh-largest company and a Wall Street favorite as the country's leading electricity trader.
Enron entered the biggest corporate bankruptcy in U.S. history on Dec. 2, toppled by a complex web of partnerships - improperly buttressed by Enron stock - that were used to hide more than $1 billion in debt from investors and federal regulators.
Meanwhile, Senate Majority Leader Tom Daschle, D-S.D., and Sen. Patrick Leahy, D-Vt., chairman of the Senate Judiciary Committee, proposed tougher penalties for corporate misconduct. They said their plan would be stronger than a similar proposal made by President Bush last week.
"The principle here is simple: Purposeful corporate fraud and abuse - purposeful criminal behavior - should be punished," Daschle said at a news conference.
The lawmakers acknowledged, however, that new penalties in the legislation likely would not apply to crimes possibly already committed in the Enron case.
The Labor Department is investigating Enron's actions in banning employees - who lost their retirement savings - from selling company stock in their 401(k) plans for about three weeks.
The Justice Department, the SEC and a dozen congressional committees are investigating Enron, its accounting practices and Andersen's role.
Thursday
July 3rd, 2025
3:50PM
