Friday, May 10, 2002

Andersen exec ignored advice, partner testifies

In-house board raised objections

The Associated Press

        HOUSTON — The Arthur Andersen LLP official in charge of Enron Corp. audits stretched accounting rules “to excess” and ignored advice from an in-house watchdog, another Andersen partner testified Thursday in the firm's obstruction-of-justice trial.

        Chicago-based Andersen partner Ben Neuhausen testified that David Duncan, who had led the Enron audit team until Andersen fired him earlier this year, had argued before the firm's “professional standards group” in favor of an accounting approach that would help Enron avoid posting a $300 million loss in the first quarter of 2001.

        Enron and its audit team wanted to allow Enron to account for results from its four “Raptor” entities together, allowing proceeds from two successful Raptors to be assigned to cover losses of two unsuccessful ones.

        Mr. Neuhausen said professional-standards colleagues John Stewart and Carl Bass concluded that Enron's plan “did not change the requirement needed for entities to be reported separately,” but Mr. Duncan's team ultimately disregarded the advice.

        In March, Enron learned of Mr. Bass' objections and asked Andersen to remove him from consulting on the company's books, which Andersen did.

        Five months later, Enron vice president Sherron Watkins separately voiced her worries about the Raptors to then-chairman and chief executive Kenneth Lay and Andersen partner James Hecker, who was not on the Enron account. Neither Enron nor Andersen took direct action. Ms. Watkins was hailed by some when her warning became public during a congressional investigation last winter.

        When Andersen began reconstructing the events in a flurry of conference calls in September and October, the firm determined Mr. Bass was right and advised Enron that its previous financial treatment of the Raptors needed to be restated.

        Enron unwound the murky Raptor transactions in October as its stock collapse was well under way. The company ultimately removed about $1 billion in shareholder equity from its books, news that sent Enron's stock further skidding, and the company filed for bankruptcy Dec. 2.

        Andersen is charged with one count of obstruction of justice for the alleged mass destruction of Enron documents as a Securities and Exchange Commission inquiry loomed. Mr. Duncan has pleaded guilty to the same charge and was expected to testify against Andersen and possibly shed light on sensitive Enron workings.


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