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Document-shredding at Enron, Andersen, to be probed

Government investigators descended on Enron Corp's headquarters on Tuesday to collect evidence of document shredding, while a congressional committee geared up to probe allegations of wrong-doing at Andersen, fired last week as auditor of the bankrupt energy trader.

An Enron spokesman said FBI agents and Justice Department officials arrived at the bankrupt energy trader's downtown Houston offices on Tuesday afternoon.

Their visit was at Enron's behest. The embattled company invited the Justice Department and US Securities and Exchange Commission to investigate allegations of systematic shredding since the SEC launched its probe in October.

Enron attorney Kenneth Marks said Enron made the invitation after a former executive on Monday alleged that Enron workers had continuously shredded documents since the SEC probe began.

That evening, ABC News aired an interview with former Enron executive Maureen Castaneda, in which she described shredding that began in October and lasted through at least January 14.

Castaneda, who spoke with a plaintiff's legal team led by lawyer Bill Lerach before talking to ABC, said Enron General Counsel James Derrick sent at least two e-mails during that period directing employees to retain all documents.

"Until yesterday, we believed that practice was under way," Marks told US District Judge Melinda Harmon, who is overseeing a massive shareholder lawsuit in Houston against Enron, Andersen and Enron's top officers and directors.

In Washington, the head of a House of Representatives panel said on Tuesday he was set to subpoena testimony if necessary from Big Five accounting firm Andersen.

Making clear Andersen was heading for very rough waters on Capitol Hill, Rep Jim Greenwood, a Pennsylvania Republican, said: "Everything that we've seen so far indicates that there was an unusual and urgent sense of need to destroy documents at Arthur Anderson," independent of any pressure from Enron.

Officials at Enron's headquarters searched the 19th and 20th floors and discovered a single trash can with shredded paper, which was bagged and taken into custody, said Marks.

'TROUBLE ON THEIR HANDS'

Harmon set Tuesday's hearing to hear arguments on whether she should speed up the evidence discovery process in light of the document shredding by Andersen, and now, Enron.

Lerach said on NBC's "Today" show on Tuesday Enron may have destroyed hundreds of thousands of pieces of evidence. "I'd say they've got trouble on their hands."

Lerach and other lawyers made great theatre out of a box of shredded Enron papers, which Lerach carted into the Houston courtroom after its appearance in several TV news programs.

"This is a disadvantage," plaintiff's lawyer Neil Rothstein said, fondling the shreds. "This is criminal behavior."

The shreds made reference to off-balance sheet partnerships, like Jedi and Chewco, that figured greatly in Enron's fall and included contemporaneous accounting documents, he told the court. "These were not five-year-old payroll records," said Lerach, whose law firm specialises in bringing shareholder lawsuits against companies.

Harmon gave the plaintiffs until Wednesday afternoon to present her with an agreed-upon motion for discovery, which she said should also be offered to Andersen attorneys for consideration.

Lerach said he would go after stock sale gains by top Enron executives at a time the company was showing inflated profits of $600 million as well as Andersen's profits.

Speaking on ABC's "Good Morning America" program, he said it may be necessary to put a US marshal at Enron's headquarters to "make sure these people behave themselves."

Andersen, for its part, has admitted destroying a "significant but undetermined" number of electronic and paper documents and correspondence relating to the energy trader's audit. The document destruction by Andersen, which continued after the SEC investigation began in late October, is to be the subject of a hearing by Rep Greenwood's panel on Thursday.

Andersen last week fired its top manager on the Enron account and suspended four others over the document shredding.

Also on Tuesday, President George W Bush defended the administration's handling of Enron's dramatic collapse and promised government action to better protect investors.

Bush said his Cabinet's response to Enron was: "No help here." The president said he spoke to O'Neill and Evans about their contacts with Enron, but did not say when that occurred.

Congress is planning six hearings over the next month into the Enron collapse, with Democrats searching for links to the Bush administration. The hearings could lead to legislation on pension law and regulation of financial markets in several areas as lawmakers react to the fast-widening scandal.

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