Experts say auditor's plea deal could bolster government's case against Andersen

Wednesday, April 10th 2002, 12:00 am
By: News On 6

HOUSTON (AP) _ As the auditor who oversaw Enron Corp.'s books, David Duncan had an insider's view of alleged accounting abuses and shady partnerships that brought the company down.

Now the former Arthur Andersen LLP auditor is cooperating with the government as part of a plea deal that could give prosecutors a much stronger hand in their case against the beleaguered accounting firm.

David Duncan, initially cast off as a rogue in Andersen's Houston office when the firm acknowledged the shredding, pleaded guilty Tuesday to obstruction of justice in exchange for immunity from any other charges.

Experts say his cooperation could break the scandal wide open.

``Now the government is in the driver's seat and has all the leverage, because it appears they have the dirt on many of the Andersen and Enron employees,'' said Thomas Ajamie, a Houston attorney and securities experts.

``The smart ones will run to the government's door and try to work out a deal before it's too late,'' he said.

Duncan, 42, is believed to be the first person in the Enron case to strike a deal with federal prosecutors. He was fired by Andersen in January after the firm acknowledged the destruction of Enron documents and deletion of computer files related to the collapse of the energy giant.

Duncan could prove pivotal in the investigations into Enron and Andersen. As the senior auditor in charge of the Enron account, he would presumably know about the complex web of partnerships used by the company to keep millions of dollars in debt off its books.

Duncan on Tuesday admitted persuading co-workers and others to shred documents to thwart the government's investigation into Enron.

Standing before U.S. District Judge Melinda Harmon, Duncan described how he ordered Andersen employees to comply with a policy to retain certain documents and destroy others on Oct. 21, two days after he learned that the Securities and Exchange Commission was investigating the company.

``I also personally destroyed such documents,'' he told the judge. ``I accept that my conduct violated federal law.''

Attorney Rusty Hardin, who represents Andersen, said the firm was surprised and disappointed by his statement. He said Duncan had denied any criminal wrongdoing until Tuesday.

``Arthur Andersen made the decision to terminate Mr. Duncan last January based on his exercise of extremely bad judgment in this matter. We stand by that decision,'' Hardin said.

An obstruction conviction can carry fines and up to 10 years in prison. Harmon warned Duncan that the sentence could be more severe than anything prosecutors might have discussed with him.

Under the plea deal, Duncan is immune from any further prosecution related to the Enron case as long as he continues to fully cooperate with federal authorities _ which could include testimony at future trials _ and agrees not to sell his story or otherwise profit from the debacle.

Duncan will remain free until his sentencing hearing on Aug. 26.

A grand jury indicted Andersen on March 7 on a single count of obstructing justice, accusing the firm of destroying ``tons of paper'' and deleting enormous numbers of computer files related to Enron in Houston and elsewhere.

At times, the government said the destruction was so frenetic that employees worked overtime and shredding machines couldn't keep pace. The indictment was unsealed March 14, and Andersen has pleaded innocent. A trial is scheduled to start May 6.

After Duncan was fired, he and Andersen appeared unified, each asserting their innocence. Duncan's plea undermined that united front, said Neil Getnick, a New York business fraud attorney.

``At some level, Andersen had to engage in the high-risk strategy of bringing Duncan back into the fold after initially casting him off as a free agent who did what he did on his own,'' Getnick said.

Regarding Enron, Duncan likely knew what needed to be destroyed to eliminate the company's problems, Getnick said.

``He knows where the bodies are buried,'' he said.