U.S. closes in Andersen trial
Prosecutors focus on firm's past accounting scandals, Andersen argues for Duncan's innocence.
June 5, 2002: 7:36 PM EDT
By Luisa Beltran, Jennifer Rogers and Peter Viles

NEW YORK (CNN/Money) - Call it strange: The government chose not to focus on evidence from its star witness, David Duncan, in its closing arguments in Arthur Andersen LLP's obstruction of justice trial Wednesday, but instead keyed in on an Andersen lawyer who didn't even testify and accounting scandals from the firm's past.

Prosecutor Sam Buell narrowed in on the actions of Andersen in-house counsel Nancy Temple and the firm's legal department. Buell called the legal department a "driving force" behind the shredding of Enron Corp. documents, which he said was an attempt by the firm to thwart a federal investigation.

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Buell also pointed to a binder of handwritten notes from Temple, taken from numerous conference calls with Andersen executives, to show that the attorney realized that the Securities and Exchange Commission would probably open an investigation into Enron.

"There is absolutely no doubt that Temple was anticipating an SEC investigation," Buell told the jury in his summation, which ran more than 2-1/2 hours.

The prosecutor portrayed Temple as a mastermind of document destruction. "She never says 'stop,' she never says 'retain,' she never says 'Hold on to the Enron documents,' because she's interested in document destruction, not retention," he said.

Surprisingly, evidence from Duncan, who agreed to testify against Andersen, was not featured as prominently in Buell's closing argument. Duncan called an Oct. 23 meeting, when he was then the firm's lead audit partner on the Enron account, and ordered employees to adhere to the firm's guidelines on "document retention," which calls for the destruction of irrelevant documents.

The fired auditor testified in the criminal trial that he didn't know he was committing a crime when he initiated the shredding in October of last year. In fact, Duncan said it took months for him to realize that he did commit a crime.

The former Andersen executive provided more doubts for the government than he resolved, said Robert Mintz, former U.S. prosecutor and expert on white-collar crime and now partner with McCarter & English.

"The biggest problem is that Duncan didn't come across as someone who was convinced of his own guilt," Mintz said. "If he can't figure out [that he is guilty] how can you impute liability to the entire partnership?"

The Hardin show

While the government chose not to focus on its star witness, Andersen did. Lead defense attorney, Rusty Hardin, began his closing argument late Wednesday afternoon and quickly went to the subject of intent. The government bears the burden of proving that Andersen intended to "subvert or undermine" an official proceeding.

"Does David Duncan establish there was a crime?" Hardin asked. "Absolutely, unequivocally, without a doubt, no. Are those the words of Rusty Hardin? No, those are the words of David Duncan."

Later, he put up Duncan's testimony in huge type. The former Andersen executive testified in the trial that he broke the law when he told employees to adhere to the firm's document policy, knowing that would lead to the destruction of documents.

"That is not a crime," Hardin thundered. "God help the man for having pled guilty...but that is not a crime."

The colorful attorney has gotten into frequent spats with prosecutors and Judge Melinda Harmon.

But Hardin started off Wednesday by apologizing for some of his antics and said he was honored to represent Andersen. The Texas attorney then tried to put a human face on the trial.

"We have had an incredible amount of documents," Hardin said. "But this is a case about people."

He also accused the government of rushing to judgment and destroying a company of 28,000 people.

The case

Andersen is accused of obstructing justice when it shredded Enron records while on notice of an SEC investigation into Enron, the Houston-based energy trader that filed the biggest bankruptcy in U.S. history on Dec. 2 after collapsing under a load of off-the-books debt.

Andersen, as Enron's auditor, approved Enron's financial statements. Andersen employees in Houston started destroying Enron documents Oct. 23 and didn't stop until after Nov. 8, when Andersen received a subpoena from the SEC.

"If you know the SEC is coming, you can't destroy evidence," Buell told the jurors.

Andersen attorney Temple sent an Oct. 12 e-mail that reminded Andersen executives about the firm's policy on documents. But jurors in the criminal trial never got a chance to hear from Temple, since she chose not to testify and invoked her Fifth Amendment right against self-incrimination.

Fired Andersen partner Duncan, who agreed to plead guilty and cooperate with the Justice Department in April, has said that the Temple e-mail prompted the shredding.

Buell also focused on Andersen's prior history with the SEC and the fact that the accounting firm was on probation for its audit work for Waste Management, the nation's biggest trash hauler. The government lawyer called the evidence against Andersen "wide and deep."

"The point is, Andersen knew the drill. They knew the stakes with the SEC," Buell said. "They knew that Enron was deja vu all over again with Waste Management and Sunbeam."

Andersen, Buell said, feared losing its license to audit public companies and shredded to avoid another infraction with the SEC.

For Andersen to be guilty, jurors must find that the firm intended to keep the documents from the SEC when it shredded them. Government lawyers claim that Andersen's sudden promotion of its document retention policy -- which calls for employees to destroy extraneous documents -- in October was an implicit effort to thwart the SEC investigation into Enron.

Andersen has admitted that employees in its Houston office destroyed Enron documents but claims they were following firm policy and didn't destroy anything relevant.

Jury can consider Andersen skeletons

Judge Harmon ruled Tuesday that the jurors can consider Andersen's involvement in other accounting scandals, specifically Waste Management.

Last summer, Andersen agreed to pay the SEC $7 million to settle charges related to its work for Waste Management, the largest civil penalty ever against a Big Five accounting firm. More important, as part of the settlement with the SEC, Andersen agreed to an injunction that forbade it from future wrongdoing.

Before Waste Management, Andersen also got into trouble with Sunbeam Corp., which in 1998 was forced to restate financial results for 1996 and 1997. Andersen, as Sunbeam's auditor, agreed to pay $110 million to settle shareholder lawsuits.

"If any defendant should know better, it is Arthur Andersen," Buell said in his remarks.

Regarding Temple, the government had wanted to tell the jurors that the Andersen lawyer and two other witnesses invoked their right to silence. Instead, the judge ruled that prosecutors could only say that Temple, and the other witnesses, weren't available for the Andersen trial.

Where's Duncan?

Though widely anticipated, Duncan proved to be much less persuasive than government prosecutors had hoped. In April, he agreed to plead guilty to obstructing justice and admitted that he oversaw the destruction of documents to thwart a government investigation.

Duncan testified that in October, when he ordered employees to adhere to the firm's policy, he thought it was "entirely appropriate" for Andersen employees to destroy documents until the firm received a subpoena notifying it that Enron was the subject of a government investigation.

In fact, it took Duncan months to determine that he did commit a crime. The fired auditor explained that he had initially thought he was innocent, but changed his mind in March after talking to his family.

"Duncan wasn't all that convincing at the end of the day," McCarter & English's Mintz said.

Though Duncan has admitted he is guilty, the defense is still entitled to argue that he is not. The jury will likely get handed the case sometime on Thursday. The longer the jury is out considering the evidence, the more likely they will side with Andersen, legal experts have said.

"The jurors can determine that this is a 43-year-old man with three young daughters looking at a very long stretch in jail," Mintz said.  Top of page

--from staff and wire reports