Arthur Andersen Pleads Not Guilty

Arthur Andersen Investigation, 020314, GD
Embattled accounting firm Arthur Andersen Wednesday pleaded not guilty to federal charges that it obstructed justice by shredding vital documents connected to its audit of collapsed energy trader Enron Corp.

Eugene Frauenheim, managing partner of Andersen's Houston office, entered the plea on behalf of the Chicago-based accounting firm before U.S. Magistrate Judge Calvin Botley in Houston.

The hearing was the auditing firm's first since a federal indictment was unsealed last week.

Outside the courthouse, hundreds of chanting Arthur Andersen employees protested the indictment, saying they aren't cowering from the charges.

"I was not involved in Enron and I bet you couldn't find six people here who were," said Charlotte Williams, who has worked at Arthur Andersen for 21 years. "We're going to stay until the lights go out if necessary."

Williams and other employees wearing "I am Arthur Andersen" T-shirts chanted: "Drop the indictment! Save Andersen!"

U.S. District Judge Melinda Harmon, who ultimately will hear the case, set a trial date of May 6 and said she hoped to complete the trial in three weeks.

Rusty Hardin, an Andersen attorney, had said the company wanted a swift jury trial to challenge what he called flimsy government evidence.

"An indictment is just as bad as a conviction in terms of the company's reputation unless we get a quick trial and vindication," Hardin said.

The indictment, the first related to Enron Corp.'s collapse, accuses Andersen of obstructing justice by shredding tons of documents and deleting computer files related to Enron audits.

If convicted of the charges, Arthur Andersen faces a fine of up to $500,000 and probation for up to five years. It also might have to pay twice the gross gain or loss caused by the offense.

The indictment said high-level Andersen management officials held a conference call to discuss the onset of a Securities and Exchange Commission inquiry of Enron in October. Dozens of trunks then were obtained to haul paper from Andersen's offices in the Enron building to the auditing firm's Houston office for shredding, according to the indictment.

"Tons of paper relating to the Enron audit were promptly shredded as part of the orchestrated document destruction," the indictment said.

Andersen vehemently challenged the allegations, calling them "couched in broad, vague, and conclusory terms. They offer no detail at all, and fail even to identify by name the higher-ups at Arthur Andersen LLP who the government believes masterminded the document destruction."

The firm is also asking its 28,000 U.S. workers to write to Congress and say they are being "emotionally and financially crippled" by the indictment.

Andersen, Enron's auditor for 16 years, acknowledged in January a "significant but undetermined" amount of Enron-related documents had been destroyed at its Houston office.

No individuals were indicted even though Andersen has sought to blame the accounting scandal on its lead Enron auditor, David Duncan, and others in its Houston office.

Duncan was fired shortly after that acknowledgment and is cooperating with investigators.

But the indictment alleged Enron documents had been destroyed by Andersen personnel in London, Portland, Ore., and at the firm's headquarters in Chicago.

The indictment has had other possible effects on Andersen. The New York Times reported Wednesday that talks between Andersen and the Securities and Exchange Commission over a $500 million payment to settle claims stemming from the Enron investigation broke off after the indictment.

The money would have been used to reimburse investors who lost large sums when Enron collapsed in December, the newspaper said.

Andersen faces dozens of lawsuits and an exodus of clients following Enron's collapse. The latest client loss came Tuesday when Houston-based Dynegy Inc., a 15-year Andersen customer, switched to PricewaterhouseCoopers LLP.

The energy giant filed for the largest bankruptcy in U.S. history on Dec. 2 after failing amid a complex web of partnerships that Enron used to keep some $500 million in debt off its books.

Enron stock plummeted when its troubles were disclosed, costing investors millions of dollars. Thousands of current and former Enron employees lost the great bulk of their retirement savings.

Several congressional committees and the Securities and Exchange Commission are investigating the matter.

Andersen, the smallest of the Big Five accounting houses currently has 85,000 employees and $9.3 billion annual revenues worldwide.