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Duncan Explains His Guilty Plea

The prosecution's star witness in accounting firm Arthur Andersen's obstruction of justice trial testified on Wednesday that pressure, fear of investigation, and the government's interpretation of the law caused him to decide he had committed a crime.

Fired top Enron Corp. audit partner David Duncan made the revelation during his cross-examination by the defense, which started Wednesday. Duncan, who is testifying in exchange for a lighter sentence recommendation, pleaded guilty to the same crime for which Chicago-based Andersen is charged -- criminal obstruction of justice.

Defense lawyer Rusty Hardin asked when Duncan began getting nervous about becoming a target of investigation by federal agents, launched after Enron's disastrous accounting scandal launched it into the largest U.S. bankruptcy.

He answered that it came sometime during Jan. 14-16, a period that included his dismissal from Andersen and two meetings with federal and congressional investigators.

"At some point during that January timeframe, that thought began to enter my mind," Duncan answered in his deadpan style.

Until that point and even until late March, "I did not believe I had done anything wrong," Duncan said.

But after the Andersen criminal indictment was unsealed on March 14, Duncan said he broached with his family the possibility he had committed a crime. He had already been told he was a target of U.S. Justice Department investigators the month before.

"There was interpretation of the law that factored into my decision," he said.

Hardin asked about Duncan's "evolutionary process" from deciding he had committed no crime to deciding he was guilty. Duncan's change-of-heart came after a lot of soul-searching and review of the law, he said.

"You're speaking of what others are telling your interpretation of the law was," Hardin said, eliciting a "yes" from Duncan.

For jurors, deciding whether Duncan believed he was destroying records with the motive of avoiding investigation is a key determination. The prosecution argues that Duncan's guilty plea and admission of a motive to destroy documents can be ascribed to the firm's guilt, since he was a senior partner acting for the benefit of his employer.

Wednesday was Duncan's third day of testimony, and the first under questioning from Hardin.

Hardin reminded Duncan prosecutors could decide how strongly to recommend mercy based on his testimony this week.

"So the real hammer in this case is held at (the prosecutors') table, isn't it?" Hardin said, implying Duncan is under pressure to implicate Andersen for his own good.

Hardin also suggested that Duncan, who has daughters aged 8, 6 and 3 with his wife of 10 years, could have faced up to 80 years in prison if a fraud conviction were won because of the billions of dollars in losses related to Enron's fall.

Duncan said he had no idea how much time he might serve, but admitted he "did have increased exposure" to prison time if prosecutors lodged more charges.

Early on, Hardin's attempts to keep the questioning going met with fierce resistance from repeated prosecution objections and U.S. District Judge Melinda Harmon's overwhelming approval of them.

At least four times, the judge halted questioning and the lawyers went to the bench for animated arguments. On one occasion, Harmon -- considered by Houston lawyers to be the most pro-government judge on the local federal bench -- raised an objection to Hardin's question without any action from assistant U.S. Attorney Andrew Wiessmann.

Trying to show that Duncan, and by implication, Andersen had nothing to hide, Hardin asked Duncan when he decided to stop his employees from complying with Andersen's record-keeping policy. On Oct. 23, Duncan told his employees to destroy all extraneous records per the policy, which one of the firm's lawyers had reminded him of earlier.

As soon as that lawyer, Nancy Temple, left a Nov. 8 voice mail informing him the firm had been subpoenaed by the SEC, Duncan ordered an end to the shredding and deleting.

"I told them that they needed to stop anything they were doing," Duncan said. "I told them they needed to not follow the policy anymore."

Duncan, who has projected a forthright and poised manner during his three days on the stand, has not been the devastating witness he was expected to be.

He has yet to provide a smoking gun that prosecutors were expected to have, although he did state that Andersen billed Enron more than $500,000 for helping out on the SEC inquiry -- rock-solid proof the firm was aware of the investigation while it was shredding records.

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