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Thursday, 17 January, 2002, 02:14 GMT
Andersen 'warned' of Enron crisis
Enron Andersen
Andersen: Caught up in the Enron scandal
Accountancy firm Andersen was alerted to the growing crisis at failed US energy company Enron back in August, congressional investigators said.

Enron whistle-blower Sherron Watkins telephoned Andersen about her concerns months before the company collapsed.

Without question, this is the most difficult and challenging episode in our firm's history.

Andersen chief executive Joseph Bernardino
"It's now clear to us that key players at Andersen as well as Enron knew of the growing problems months before the company imploded," said Ken Johnson, spokesman for the congressional committee investigating the affair.

His comments came as David Duncan, the man in charge of auditing Enron, met members of the US House Energy and Commerce Committee staff for several hours on Wednesday.

Mr Duncan was fired on Tuesday for allegedly ordering the destruction of Enron-related documents and e-mails after US stock market regulators asked for information on the firm.

Committee investigators said the session with Mr Duncan had provided valuable information.

Legal dispute

Mr Duncan has said his actions were in line with Andersen's own policy on the deletion of documents.

"Mr Duncan... did nothing wrong... he followed the instructions of an Andersen in-house lawyer in handling documents," his lawyers said in a statement.

The dispute between Andersen and its former employee comes as the accountancy firm battles to refute allegations that it turned a blind eye to irregular accounting procedures which ultimately led to the collapse of Enron, the biggest bankruptcy in US corporate history.

Andersen has also placed on leave three other partners involved in auditing Enron.

Bankruptcy scandal

In November, Enron was forced to reveal that it had concealed debts and inflated its profits between 1997 and the first half of 2001, shortly after Andersen had signed off its most recent set of accounts.

The undeclared debts had been squirreled away in a series of complex external financial partnerships.

Enron's subsequent collapse wiped out the company's $1bn pension fund, based largely on the company's own stock, leaving many former employees without a retirement plan.

Enron pension fund contributors and other aggrieved investors, already preparing lawsuits against Enron, are now thought likely to extend their legal action to Andersen.

Tarnished image

On Wednesday, Andersen took out a series of full-page advertisements in major US newspapers in an attempt to distance itself from the scandal.

The advertisements included a statement from Andersen chief executive Joseph Bernardino which read:

"Without question, this is the most difficult and challenging episode in our firm's history. We also believe, however, that the ultimate test of an organisation's character and resilience is how it responds to adversity, and how it emerges from the experience."

Analysts said the damage to Andersen's reputation, coupled with possible multi-million dollar legal penalties, could effectively destroy the company.

Enron faced further humiliation this week when its shares, which have fallen in value from $83 a year ago to just $1, were delisted from the New York Stock Exchange.

The NYSE said the company's stock is "no longer suitable" for trading due to the complex legal proceedings surrounding its bankruptcy.

Mike Rake, chairman of the European arm of KPMG
On the role of the auditor
The BBC's Stephen Sackur in Washington
"The inquest is sure to be stormy"
Prof Michael Greenberger, University of Maryland
"I personally believe it is a mistake to focus too much on this as a scandal"
See also:

14 Jan 02 | Business
Andersen attacked for Enron role
14 Jan 02 | Business
Timeline: Enron's rise and fall
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
14 Jan 02 | Business
Audit giants called to account
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