Andersen threatened by email

In January, David Duncan, the partner in charge of Enron at Andersen’s Houston office, was fired by the auditor for “an expedited effort to destroy documents”. Specifically, Duncan was accused of the systematic shredding and deletion of thousands of Enron-related paper and electronic documents, emails and memos.

“Enron robbed the bank. Arthur Andersen provided the getaway car and they say you were at the wheel,” James Greenwood, chair of the oversight and investigations sub-committee told Duncan in February after Andersen had pinned the blame on staff at the Houston office.

But if Duncan was the driver, who was Mr Big? Who had ultimate control over the retention and destruction of electronic information within Andersen?

Auditors don’t destroy documents willy-nilly, and Duncan has claimed he was acting on advice from in-house lawyers. There has even been a suggestion that senior partners at Andersen’s Chicago HQ were involved.

Duncan took the Fifth Amendment after being refused immunity from prosecution. But his silence may be in vain – the protagonists in the destruction of documents may have already incriminated themselves via internal email.

It transpires that Duncan arranged a meeting on 23 October 2001, a day after the SEC announced it was investigating Enron, in which he gave the green light for shredding and deletion to commence. A conference call including senior partners at Andersen HQ is also supposed to have taken place on this date to discuss “status of documentation” of Enron matters.

But the subject of document retention had been brought up earlier. On 12 October, Michael Odom, a partner working with Duncan, received an email from Nancy Temple, in-house legal counsel for Andersen in Chicago, stating “It might be useful to consider reminding the engagement team of our documentation and retention policy.” Temple was referring to Andersen’s rulebook that states emails “should be retained until not useful”. Investigators have since found that Odom forwarded this email to Duncan with the cryptic message “more help” attached.

The SEC issued a subpoena on 8 November. But even then Duncan’s team did not stop destroying documentation until the following day, when another email was sent from Duncan’s assistant to the other Andersen secretaries with the urgent note “stop the shredding”. Temple then sent an email to Duncan on 10 November along the same lines.

In the Enron case, data recovery specialist Ontrack Data International is working with Andersen to follow the electronic paper trail of thousands of recovered emails and internal memos consigned to the Andersen trash-can. Unlike shredded paper, emails leave a trace that enables investigators to know which documents were deleted and who had access to them – which may lead investigators to the guilty parties.

While his first mistake was even to consider destroying emails, Duncan’s second was to use email to discuss the issue. But he really messed up by thinking he could destroy the evidence. Ultimately, there is only one sure-fire way to delete email: firstly you must smash your hard drive into tiny pieces. Then you must destroy your servers. And, finally, you must do the same to the IT hardware of anyone who read or received the email. Even then you are bound to miss a back-up copy or two.

Even if email messages are no longer visible on a PC, data remains on the hard drive labelled as available space until the computer overwrites it. Erasure software overwrites files several times with junk data but still leaves fragments of messages that can be recovered.

Duncan could and should face criminal proceedings, Odom has been stripped of his management duties and the US authorities have stated that Temple is not above suspicion. It will be a question of where exactly the buck stops as more emails come to light. More Andersen partners may well find themselves in front of Congress, and as Billy Tauzin, head of the full oversight and investigations committee stated categorically on 24 January: “This committee will cut no one any slack.”

In an effort to calm things down, Joe Berardino, Andersen’s managing partner says “Andersen will announce comprehensive changes in our practices and policies that we believe will reaffirm confidence in the independence and quality of our work.”

What’s the betting that these policy changes will include strict guidelines on the use of email?