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UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF TEXAS
UNITED STATES OF AMERICA
against
ARTHUR ANDERSEN, LLP
INDICTMENT
Cr. No. _____
(T. 18, U.S.C., §§ 1512(b)(2) and 3551 et
seq.)
THE GRAND JURY CHARGES:
I. ANDERSEN AND ENRON
1 . ARTHUR ANDERSEN, LLP
("ANDERSEN), is a partnership that performs, among other things, accounting and
consulting services' for clients that operate businesses throughout the United
States and the world. ANDERSEN is one of the so-called 'Big Five" accounting
firms in the United States. ANDERSEN has its headquarters in Chicago, Illinois,
and maintains offices throughout the world, including in Houston, Texas.
2. Enron Corp. ("Enron") was an Oregon corporation with its principal place of
business in Houston, Texas. For most of 2001, Enron was considered the seventh
largest corporation in the United States based on its reported revenues. In the
previous ten years, Enron had evolved from a regional natural gas provider to,
among other things, a trader of natural gas, electricity and other commodities,
with retail operations in energy and other products.
3. For the past 16 years, up
until it filed for bankruptcy in December 2001, Enron retained ANDERSEN to be
its auditor. Enron was one of ANDERSEN's largest clients worldwide, and became
ANDERSEN's largest client in ANDERSEN's Gulf Coast region. ANDERSEN earned tens
of millions of dollars from Enron in annual auditing and other fees.
4. ANDERSEN performed both internal and external auditing work for Enron mainly
in Houston, Texas. ANDERSEN established within Enron's offices in Houston a work
space for the ANDERSEN team that had primary responsibility for performing audit
work for Enron. In addition to Houston, ANDERSEN personnel performed work for
Enron in, among other locations, Chicago, Illinois, Portland, Oregon, and
London, England.
II. THE ANTICIPATION OF LITIGATION AGAINST ENRON AND ANDERSEN
5. In the summer and fall of 2001, a series of significant developments led to
ANDERSEN's foreseeing imminent civil litigation against, and government
investigations of, Enron and ANDERSEN.
6. On or about October 16, 2001, Enron issued a press release announcing a $618
million net loss for the third quarter of 2001. That same day, but not as part
of the press release, Enron announced to analysts that it would reduce
shareholder equity by approximately $1.2 billion. The market reacted immediately
and the stock price of Enron shares plummeted.
7. The Securities and Exchange Commission ("SEC") , which investigates possible
violations of the federal securities laws, opened an inquiry into Enron the very
next day, requesting in writing information from Enron.
8. In addition to the negative financial information disclosed by Enron to the
public and to analysts on October 16, 2001, ANDERSEN was aware by this time of
additional significant facts unknown to the public.
The approximately $1.2 billion reduction in shareholder equity disclosed to
analysts on October 16, 2001, was necessitated by ANDERSEN and Enron having
previously improperly categorized hundreds of millions of dollars as an
increase, rather than a decrease, to Enron shareholder equity.
The Enron October 16, 2001, press release characterized numerous charges against
income for the third quarter as non-recurring" even though ANDERSEN believed the
company did not have a basis for concluding that the charges would in fact be
non-recurring. Indeed, ANDERSEN advised Enron against using that term, and
documented its objections internally in the event of litigation, but did not
report its objections or otherwise take steps to cure the public statement,
ANDERSEN was put on direct notice of the allegations of Sherron Watkins, a.
current Enron employee and former ANDERSEN employee, regarding possible fraud
and other improprieties at Enron, and in particular, Enron' a use of
off-balance-sheet "special purpose entities" that enabled the company to
camouflage the true financial condition of the company. Watkins had reported her
concerns to a partner at ANDERSEN, who thereafter disseminated them within
ANDERSEN, including to the team working on the Enron audit. in addition, the
team had received warnings about possible undisclosed side-agreements at Enron.
The ANDERSEN team handling the Enron audit directly contravened the accounting
methodology approved by ANDERSEN's own specialists working in its Professional
Standards Group. In opposition to the views of its own experts, the ANDERSEN
auditors had advised Enron in the spring of 2001 that it could use a favorable
accounting method for its "special purpose entities."
In 2000, an internal review conducted by senior management within ANDERSEN
evaluated the ANDERSEN team assigned to audit Enron and rated the team as only a
"2" on a scale of one to five, with five being the highest rating.
on or about October 9, 2001, correctly anticipating litigation and government
investigations, ANDERSEN, which had an internal department of lawyers for
routine legal matters, retained an experienced New York law firm to handle
future Enron-related litigation.
III. THE WHOLESALE DESTRUCTION OF DOCUMENTS BY ANDERSEN
9. By Friday, October 19, 2001, Enron alerted the ANDERSEN audit team that the
SEC had begun an inquiry regarding the Enron "special purpose entities" and the
involvement of Enron's Chief Financial Officer. The next morning, an emergency
conference call among high-level ANDERSEN management was convened to address the
SEC inquiry. During the call, it was decided that documentation that could
assist Enron in responding to the SEC was to be assembled by the ANDERSEN
auditors.
10. After spending Monday, October 22, 2001 at Enron, ANDERSEN partners assigned
to the Enron engagement team launched on October' 23, 2001, a wholesale
destruction of documents at ANDERSEN's offices in Houston, Texas. ANDERSEN
personnel were called to urgent and mandatory meetings. Instead of being advised
to preserve documentation so as to assist Enron and the SEC, ANDERSEN employees
on the Enron engagement team 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. During the next few weeks, an
unparalleled initiative was undertaken to shred physical documentation and
del6te computer files. Tons of paper relating to the Enron audit were promptly
shredded as part of the orchestrated document destruction. The shredder at the
ANDERSEN office at the Enron building was used virtually constantly and, to
handle the overload, dozens of large trunks filled with Enron documents were
sent to ANDERSEN's main Houston office to be shredded. A systematic effort was
also undertaken and carried out to purge the computer hard-drives and E-mail
system of Enron-related files.
11. 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 that Enron documents were destroyed there as
well. Indeed, in London, a coordinated effort by ANDERSEN partners 'and ?others,
similar to the initiative undertaken in Houston, was put into place to destroy
Enron-related documents within days of notice of the SEC inquiry. Enron-related
documents also were destroyed by ANDERSEN partners in Chicago.
12. On or about November 8, 2001, the SEC served ANDERSEN with the anticipated
subpoena relating to its work for Enron. In response, members of the ANDERSEN
team on the Enron audit were alerted finally that there could be "no more
shredding" because the firm had been "officially served" for documents.
THE CHARGE: OBSTRUCTION OF JUSTICE
13. On or about and between
October 10, 2001, and November 9, 2001, within the Southern District of Texas
and elsewhere, including Chicago, Illinois, Portland, Oregon, and London,
England, ANDERSEN, through its partners and others, did knowingly, intentionally
and corruptly persuade and attempt to persuade other persons, to wit: ANDERSEN
employees, with intent to cause and induce such persons to (a) withhold records,
documents and other objects from official proceedings, namely: regulatory and
criminal proceedings and investigations, and (b) alter, destroy, mutilate and
conceal objects with intent to impair the objects, integrity and availability
for use in such official proceedings.
(Title 18, United States code, Sections 1512 (b) (2) and 3551 et seq.)
A TRUE BILL
________________
FOREPERSON
JOSHUA R. HOCHBERG
ACTING UNITED STATES ATTORNEY
SOUTHERN DISTRICT OF TEXAS
LESLIE R. CALDWELL
DIRECTOR, ENRON TASK FORCE
By:___________________________
Samuel W. Buell
Andrew Weissmann
Special Attorneys
Department of Justice
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