Enron Was Economic–Not Accounting–Failure, Says Andersen CEO

But audit firm's risk manager said to confirm existence of document-destruction memo. Also: Tyco talks, Moody's speeds up, Connecticut investigates (Enron).

Michael Odom, the head of risk management for Andersen’s Houston office, told congressional investigators that he was reminded of the firm’s document-disposal policy in an Oct. 12 e-mail he received from the auditor’s Chicago office. This, according to The Wall Street Journal.

Odom’s statement seems to contradict the assertions of Andersen management that the document destruction was the act of a few irresponsible and reckless employees in the firm’s Houston office. In fact, on NBC’s “Meet the Press” Sunday, Andersen Chief Executive Joseph Berardino said Enron’s lead auditor, David Duncan (who Andersen axed last week for overseeing the document destruction), was fired after “he displayed extremely poor judgment” in his role in the disposal of Enron-related documents. But Duncan reportedly told Congressional investigators he too received the Oct. 12 e-mail reminding employees of Andersen’s document disposal policy.

In his spot on “Meet the Press,” Berardino belittled the notion that Andersen was not vigilant in uncovering Enron’s accounting maneuvers because the firm was getting $100 million a year in consulting fees from the energy trader. “That’s a lot of money, we understand that,” Berardino conceded. “But we’re also a $10 billion organization. This client was a fraction of 1 percent of our fees,” Berardino said.

In addition, Berardino blamed Enron’s collapse on a failed business model, not accounting errors. “A company has failed and it has failed because the economics didn’t work,” he said. “To my knowledge, there was nothing that we’ve found that was illegal. The accounting reflects the results of business activities. And the way these events were being accounted for were clear to management and to the board. But at its base, this is an economic failure.”

Berardino has a point. Enron may have gone down in flames, and taken a lot of investors and employees with it. But so far, the only thing Enron senior management appears to be guilty of is poor judgment and creative accounting. You don’t lock people up for that.

Shredding documents related to an ongoing SEC investigation… that’s a different story.

Incidentally, Connecticut’s accounting regulatory board said Friday it too is investigating Andersen. The investigation could result in the auditor losing its license in the state, according to published reports. Connecticut Attorney General Richard Blumenthal called for an investigation “into evidence of potential legal and ethical breaches by Arthur Andersen that may merit suspension or revocation” of its license.

The Charter State investigated Andersen back in 1993 for its involvement with the Colonial Realty Co., say reports. At the time, Andersen was accused of–yup–destroying documents and files relating to its work for Colonial. Andersen wound up settling with the state for $3.5 million before charges were brought against the firm, according to the reports.

Greenspan Won Enron Award; Not On His Mantle, However

Now Alan Greenspan is being dragged into the Enron-Andersen imbroglio.

It seems the Federal Reserve Chairman accepted the Enron Award for Distinguished Public Service just a few days after the energy trading company restated several years worth of results, says the current issue of Newsweek. The magazine claims the award ceremony took place three weeks after Enron appealed to Greenspan to help it survive by intervening with credit-rating agencies. Enron apparently got nowhere with Greenspan, who turned down the $10,000 honorarium that goes with the award. The Federal Reserve Bank also declined the $15,000 sculpture that accompanies the prize.


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