Enron entangle: Now, the court scene
By Our Corporate Bureau | 17 Jan 2002
Mumbai: California's attorney general Bill Lockyer has sought to hold the bankrupt Enron Corporation in contempt of court for failing to turn over subpoenaed documents in the state's investigation of possible price gouging during last year's power crisis.
Lockyer said the San Francisco Superior Court ordered Enron to appear at a hearing 20 February 2001 to show why it should not be held in contempt. Enron gave no comments on this. "To date, Enron has produced only a single document," Lockyer told the court. "Enron clearly has no attention of complying fully with the attorney general's subpoenas, which were issued months ago."
Reuters reports that Lockyer's request comes as a number of congressional committees, the justice department and the Securities and Exchange Commission are investigating the collapsed energy giant's demise. The firm's bankruptcy filing on 2 December 2002 was the largest in US history.
Thousands of employees lost their pensions and life savings in the former Wall Street darling's downfall, which began last autumn when the firm acknowledged several hundred million dollars of previously-undisclosed liabilities. The saga has also embroiled accounting giant Andersen, whose reviews of Enron's finances have come under heavy fire amid the firm's admission that employees destroyed a large number of e-mails and documents related to an audit of the energy trader.
In light of those revelations, Lockyer also demanded assurances again from Enron that the desired documents would not be shredded or destroyed. Meanwhile, a state senate committee plans to subpoena executives from both Enron and Andersen to see if any of the destroyed documents related to its probe of possible market manipulation during California's energy crisis.
California is seeking financial information and other data from Enron and four other energy firms to search for evidence that power providers unfairly blocked competition and caused prices to soar during an electricity crisis which also brought rolling blackouts and bankrupted the state's biggest utility.
In the meantime, the accountancy firm Andersen was alerted to the growing crisis at Enron back in August 2001, congressional investigators said. Enron whistle-blower Sherron Watkins telephoned Andersen about her concerns months before the company collapsed, BBC has reported.
"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," says 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 16 January 2002.
Duncan was fired on 15 January 2002 for allegedly ordering the destruction of Enron-related documents and emails after US stock market regulators asked for information on the firm. Committee investigators said the session with Duncan had provided valuable information.
Duncan has said his actions were in line with Andersen's own policy on the deletion of documents. "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.
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 $1-billion 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.
On 16 January 2002, 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 multimillion-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.
