Washington The government secured its first indictment in the politically charged collapse of Enron Corp., accusing the Arthur Andersen accounting firm of obstructing justice by shredding documents and deleting computer files about the energy trading company.
The one-count indictment, announced Thursday, was returned last week by a grand jury in Houston, where Enron is based, Deputy Atty. Gen. Larry Thompson said.
"The firm sought to undermine our justice system by destroying evidence," Thompson, the department's No. 2 official, said at a news conference.
Andersen said the criminal proceedings were tantamount to a "death penalty" against the firm.
The indictment alleged a possible motive for the shredding, saying that Andersen was aware of a wide range of unfavorable financial information about Enron information that was unavailable to the investing public.
"Andersen and Enron ... improperly categorized hundreds of millions of dollars," said the indictment. Just days before the destruction began, Enron publicly corrected its books, reporting a $1.2 billion drop in the company's value.
Andersen said in a statement that the indictment was "a gross abuse of government power."
"A criminal prosecution against the entire firm for obstruction of justice is both factually and legally baseless," said Andersen, which has sought to lay blame for the document destruction on its lead Enron auditor, David Duncan, and others in its Houston office.
Duncan, who was fired by Andersen, is cooperating with investigators, said his attorney, Vince DiBlasi.
Enron had no comment on the indictment.
Plea agreement possible
Thompson said the Justice Department's investigation into Enron and Andersen, including actions by partners at the firm, was continuing. He held open the possibility that a plea agreement could be worked out with Andersen.
The bankruptcy of Enron has rocked the Washington political establishment. President Bush has close ties to the company's former chairman, Kenneth Lay. Enron has been Bush's biggest political financial supporter over the years and the company has also contributed to both Republican and Democratic members of Congress.
The company's collapse cost millions of investors their money, while thousands of current and former Enron employees lost the great bulk of their retirement savings. Congressional investigations of Enron have focused on the complex web of partnerships that helped the company hide debt and post unrealistic profit figures.
The Securities and Exchange Commission also is investigating.
Andersen had been given a 9 a.m. Thursday deadline to agree to plead guilty. The firm contends that top management at headquarters in Chicago was unaware of the document destruction.
The Justice Department, however, characterized the destruction of documents and e-mails as much broader, with employees in Portland, Ore., Chicago, and London being instructed to join in the shredding.
Pointing to top Andersen executives, the indictment said that shortly before the destruction began, high-level management held a conference call to discuss the onset of the SEC inquiry of Enron.
The indictment also said that Andersen employees handling Enron audits failed to follow correct accounting methods laid out by specialists at the accounting firm. The failure was important, the indictment suggested, because it related to the complex web of partnerships that Enron used to keep hundreds of millions of dollars in debt off the company's balance sheet.
In preparation for the document destruction, dozens of large trunks were brought in to haul documents from Andersen's office in the Enron building to the accounting firm's Houston office.
"Tons of paper relating to the Enron audit were promptly shredded as part of the orchestrated document destruction," the indictment said.
The maximum penalty for obstruction of justice is a five-year term of probation and a $500,000 fine. But the worst potential penalty could be that the firm would be barred from doing business before the SEC. The agency was monitoring developments, SEC Chairman Harvey Pitt said.
Putting pressure on Enron
A court appearance in the case was set for next Wednesday.
Houston attorney Lee Hamel said Justice could be using the indictment against Andersen to create pressure on the firm to assist in the Enron investigation.
"If Enron is deflecting criticism by saying it relied on Andersen, then one of the rationales for this early indictment is to get Andersen to disclose what advice Andersen gave Enron and whether Enron disclosed all the material facts to Andersen," said Hamel, a former federal prosecutor who has been a white-collar defense lawyer for the past three decades.
In its statement, Andersen complained that the department "refused to allow the firm to tell its story to a grand jury." That decision, the firm said, violates department policy and "basic precepts of fundamental fairness. It is unclear what evidence was presented or whether any witnesses appeared before a grand jury."
Andersen's attempt to salvage some of its value by selling part or all of its accounting operations stumbled badly as word spread this week that the indictment was forthcoming. Deloitte Touche Tohmatsu and Ernst & Young announced that they weren't interested in buying any of Andersen's assets.