- WASHINGTON (Reuters) - A
federal grand jury has indicted accounting firm Andersen for obstruction
of justice tied to probes of Enron Corp.'s collapse, federal officials
announced on Thursday, prompting Andersen to say its business was damaged
but it had no plans for bankruptcy.
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- The U.S. Justice Department said Andersen was indicted
in connection with the destruction of tons of documents and computer files
sought in probes of fallen energy trading giant Enron, the center of a
storm of controversy since it filed the largest bankruptcy in U.S. history
on Dec. 2.
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- Deputy Attorney General Larry Thompson said the indictment
included allegations of widespread criminal conduct by Andersen, charging
the firm sought to undermine the justice system by destroying evidence
relevant to investigators.
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- "Dozens of large trunks were brought in to haul
documents from Andersen's office and Enron's building to Andersen's firm
office in Houston in order to destroy literally tons of documents,"
Thompson told a news conference.
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- The indictment alleged that Andersen partners and others,
at urgent and mandatory meetings, told employees to immediately destroy
documents on Enron, a top campaign contributor to President Bush and others
in Washington.
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- Chicago-based Andersen, which had been Enron's auditor
until January, blasted the prosecution of the firm by the government as
"a gross abuse of government power."
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- Confirming business damage from client defections, Andersen
spokesman Charlie Leonard said that, as of Wednesday, the firm had lost
about two percent of its annual U.S. revenues. "I would be the first
to acknowledge that we're looking at a significant hit," Leonard said
on a conference call.
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- But, he added, "There is no plan for bankruptcy
... We're affirmatively moving forward with our business in the U.S."
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- Sources close to the firm said Andersen lawyers would
likely move quickly to fight the government prosecution, possibly moving
for a rapid dismissal of the charge.
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- Andersen rivals Deloitte Touche Tohmatsu and Ernst &
Young on Wednesday ended merger talks with Andersen, citing its legal troubles.
"I can't believe another firm would be interested in them at this
point," Paul Brown, chairman of accounting at New York University's
Stern School of Business, said.
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- The Justice Department alleged that Andersen partners
began a plan for the wholesale destruction of documents just days after
Enron alerted the auditor on Oct. 19 that the U.S. Securities and Exchange
Commission had begun an inquiry into special partnerships created by the
energy firm.
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- On Oct. 16, Enron had reported its first quarterly loss
in more than four years and took $1 billion in charges on the poorly performing
partnerships.
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- SHREDDER RAN CONSTANTLY
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- "Employees were told to work overtime if necessary
to finish the job of destroying documents. The shredder at the Andersen
office and Enron building ran virtually constantly," Thompson said.
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- The indictment "alleges that, at the firm's direction,
Andersen personnel engaged in the wholesale destruction of tons of paperwork
and attempted to purge huge volumes of electronic data or information,"
Thompson said.
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- According to the indictment, the destruction effort had
spread far beyond Andersen's Houston office.
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- "In addition to shredding and deleting documents
in Houston, Texas, instructions were given to Andersen personnel working
on Enron audit matters in Portland, Oregon; Chicago Illinois; and London,
England to make sure Enron documents were destroyed there as well,"
according to the indictment.
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- Thompson said the records were destroyed in late October
and early November, at a time when Andersen knew they were relevant to
federal inquiries into Enron's collapse.
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- Justice Department officials said no individual Andersen
employees were charged, but that the investigation continued.
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- The indictment was obtained last week from a federal
grand jury in Houston, Texas, but was kept under seal until Thursday while
the Justice Department tried unsuccessfully to reach a plea agreement with
Andersen in which the company would admit guilt.
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- The maximum penalty for the charges is a $500,000 fine
and five years on probation. But Andersen, which has seen major customers
defect after the Enron collapse, has warned that a criminal indictment
would put the company in "grave jeopardy".
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- Thompson said, "These are serious charges. It shouldn't
be a surprise to anyone that serious charges have serious consequences."
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- ANDERSEN SAYS INDICTMENT IS BASELESS
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- In a statement, Andersen said, "A criminal prosecution
against the entire firm for obstruction of justice is both factually and
legally baseless."
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- It said that none of the document destruction "occurred
with the knowledge, much less the consent, of senior firm management."
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- "Moreover, the department has not suggested that
any of the discarded documents -- many of which have been retrieved --
actually contained any incriminating information that could have materially
advanced a governmental inquiry," it said.
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- A Justice Department spokesman said Andersen's initial
appearance in court will be on Wednesday before a federal magistrate in
Houston.
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- Enron on Dec. 2 made the largest bankruptcy filing in
U.S. history amid a steady stream of revelations about questionable accounting
methods and extensive off-the-books partnerships, which concealed billions
of dollars in debt and led to a $600 million reduction in four years' worth
of earnings.
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- At a Senate Banking Committee hearing, Connecticut Democratic
Sen. Chris Dodd said, "I am very concerned. I think there's a real
possibility of Arthur Andersen going bankrupt."
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- James Castellano, chairman of the American Institute
of Certified Public Accountants, said the indictment of Andersen was unprecedented
in the 110-year history of the accounting profession.
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- "While it must be said that these allegations remain
to be proved, this profession has zero tolerance for any members who break
the law," he said in a statement.
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- Lawrence Mitchell, a Georgetown University law professor,
told Reuters," This is the beginning of what appears to be the corporate
equivalent of a capital murder case for Andersen, and if you are a defendant
in a capital murder case you fight as far as you can go."
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