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Andersen may face charges
Accounting firm hires Mayer, Brown to handle any potential criminal allegations.
March 8, 2002: 1:29 p.m. ET

graphic NEW YORK (CNN/Money) - Federal prosecutors have warned Arthur Andersen they may indict the accounting firm on obstruction of justice charges for its Enron work but the action isn't imminent, a newspaper reported Friday.

People close to the case said that when lawyers from Andersen met with federal prosecutors March 1 and again on March 3, they were told of the possible indictment, according to the Wall Street Journal.

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Such a criminal indictment could have devastating consequences for the company, but the two sides are still in discussions, the report said.

A source close to Andersen confirmed to CNN/Money that the firm is in talks with Justice Department officials regarding charges stemming from the accounting firm's destruction of Enron-related documents.

Andersen also hired law firm Mayer, Brown, Rowe & Maw (the former Mayer, Brown & Platt) to handle any potential criminal charges while retaining Davis, Polk & Wardell for any civil claims, another person close to the situation told CNN/Money.

Andersen admitted in January that its employees shredded Enron documents and the firm has tried to place the blame solely on fired partner David Duncan, who said he was advised by an in-house lawyer at Andersen to destroy documents.

Testimony from Duncan's secretary, Shannon Adlong, backs the fired partner's version of events. In a deposition to attorneys for people suing Andersen, Adlong said she and other Andersen employees "understood" that Duncan was acting under orders from Chicago. CNN/Money obtained a copy of the transcript.

Adlong testified that she would routinely delete Duncan's e-mail messages, including those related to Enron, but also said she saw the message from Andersen attorney Nancy Temple directing the Houston office to "get in compliance" regarding document retention.

A Justice Department indictment could come from the accounting firm's involvement in the destruction of Enron documents, the Journal said.

The newspaper also said lawyers from the firm appealed to Deputy Attorney General Larry Thompson after news of the possible indictment, but Thompson stuck by department officials.

The Securities and Exchange Commission has been working to broker a deal between Andersen, its clients and Enron stockholders in an effort to help the firm survive, according to the report.

While an indictment would not legally stop the accounting firm from practicing, it would be a severe blow to its credibility. Since Andersen's role in Enron's woes came to light, the accounting firm has lost several clients, including Merck (MRK: Research, Estimates), Freddie Mac (FRE: Research, Estimates) and Delta Air Lines (DAL: Research, Estimates).

Andersen could not be reached for comment. graphic


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