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Monday, 14 January, 2002, 23:07 GMT
Andersen attacked for Enron role
Enron logo
Enron in the dock
Criticism of accountancy firm Andersen's role in the collapse of energy giant Enron is mounting, as officials continue to probe the auditor's destruction of key documents relating to the firm.

At the same time, a rival firm - KPMG - has been censured for investing in a client it was responsible for auditing.

US media are reporting that some Andersen officials ordered the destruction of some documents as late as October last year, in the hope of avoiding blame if the company were to collapse.

Enron was declared bankrupt at the beginning of December, in the biggest corporate failure in United States history.

Following up complaints from investors, regulators and former employees, the US authorities have now launched a series of different investigations into the collapse.

Many observers have alleged that incompetence, mismanagement or even criminality lay behind the failure, which followed the admission that corporate performance had been systematically exaggerated by senior management.

Memo leaked

Internal Andersen communications, reported in the US press over the weekend, raised the serious possibility of obstruction of justice, said Senator Joseph Lieberman, chairman of a Senate committee investigating Enron's failure.

Mr Lieberman said he was troubled that a lawyer at Andersen, in a memo dated 12 October, had ordered the destruction at a time when Andersen "knew that Enron was in real trouble, and the roof was about to collapse on them."

Andersen admitted last week that some documents related to Houston-based Enron were destroyed, but refused to discuss allegations that this was a deliberate attempt to obstruct an investigation.

Andersen later released a statement acknowledging "there were internal communications that raise questions" in connection with the Enron documents.

'Obstruction of justice'

Mr Lieberman told US television that "this kind of memo raises very serious questions about whether obstruction of justice occurred."

Four days after the memo, Enron disclosed a third-quarter loss, and the US Securities and Exchange Commission launched an investigation into the firm a week later.

Enron opted for bankruptcy at the beginning of December.

Senator Carl Levin, chairman of the Governmental Affairs investigations subcommittee, said his panel had issued 51 subpoenas and planned to focus on "deceptive practices" at Enron, along with the failure of its auditors to warn on the company's business practices.

"Managers [at Enron] lined their pockets with hundreds of millions of dollars of stock sales at the same time as a corporation was going under - and the stockholders and employees were holding the bag," Mr Levin said.

Andersen survival

Some analysts are now wondering whether Andersen can survive this latest trouble.

The accounting firm has come in for criticism of its auditing procedures before.

Andersen recently made a record payout of $7m to settle charges by the Securities and Exchange Commission over misleading audits of the US firm Waste Management.

Profession in question

And as if the scandal enveloping Arthur Andersen were not enough, the accountancy business is facing a second scandal.

KPMG has been censured by the Securities and Exchange Commission, the top financial regulator in the US, for investing in Short-Term Investments Trust, a money market fund run by AIM - a company which it was auditing.

The move was a mistake rather than a deliberate decision, KPMG insisted, saying it had thought the fund was run by a different firm.

Arthur Levitt, former SEC chairman
"Doing consulting work for an audit client at very best represents a perceptual conflict"
See also:

12 Jan 02 | Business
Enron chief asked Treasury for help
10 Jan 02 | Americas
White House plays down Enron links
10 Jan 02 | Business
Enron documents 'disposed of'
10 Jan 02 | Business
Enron collapse prompts inquiry
12 Dec 01 | Business
Enron to start $6bn sell-off
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