Enron's accountants Arthur Andersen admitted yesterday that a senior partner in charge of auditing the energy giant's books had ordered "thousands" of e-mails and "large numbers" of documents destroyed at its Houston headquarters after learning federal regulators wanted to see them.
This devastating admission comes on the heels of a leaked letter showing that four months before Enron filed for bankruptcy in December, a senior Enron executive warned chairman and chief executive Mr Kenneth Lay that Enron could implode over "accounting scandals".
Andersen said it would fire the partner, Mr David Duncan and place three other Houston-based partners - Mr Thomas Bauer, Ms Debra Cash and Mr Roger Willard - on leave over the destruction order made after Mr Duncan learned on October 23rd of a request by the Securities and Exchange Commission for information on the Enron audit. Four other Houston staff - Mr Stephen Goddard, Mr Michael Lowther, Mr Gary Goolsby and Mr Michael Odom - were stripped of managerial responsibilities.
The announcement came as the New York Stock Exchange again suspended trade in Enron and Justice Department investigators descended on Houston in a criminal inquiry into the biggest bankruptcy in US history.
Swiss bank UBS,which won an auction to buy Enron's energy trading operations, said yesterday it would pay no cash but would pay Enron 33 per cent of future profits.
The damning letter to Mr Lay came from Ms Sherron Watkins, a vice-president for corporate development and a former Andersen employee and was found among 41 boxes of documents requisitioned from Houston by a Congress committee. "I am incredibly nervous that we will implode in a wave of accounting scandals," Ms Watkins, wrote. "It sure looks to the layman on the street that we are hiding losses in a related company..." She said that several senior Enron employees "consistently and constantly" questioned accounting methods to senior Enron officials and quoted a manager as saying "I know it would be devastating to all of us, but I wish we would get caught. We're such a crooked company."
For three years, Enron had vastly overstated its earnings and hidden debt in a series of undeclared partnerships while executives sold more than $1 billion of personal stock.
In mid-August, around the time he received the letter, Mr Lay reassured staff that growth in the company had "never been more certain" and that they could expect "a significantly higher stock price". This later caused great bitterness among thousands of Enron employees in Houston who lost their savings and pension funds as Enron collapsed from $37 to 30 US cents.
The letter adds to allegations of impropriety against Enron and Andersen, and draws into the scandal Vinson & Elkins, Enron's law firm which was asked by Mr Lay to investigate the letter but found no wrongdoing.
Enron's Washington lawyer criticised the leak by the House Energy and Commerce Committee for unfairly creating a "scandal mentality".
A committee spokesman called the letter "an explosive new development" and said it had asked for explanations from Mr Lay, Arthur Andersen's managing director, Joseph Berardino, and Joseph Dilg, managing partner of Vinson & Elkins about how they responded.
