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Fired Andersen partner told Enron of fears

In a sign that Enron Corp waved off red flags on the brink of its stunning collapse, a fired partner at accounting firm Andersen warned the company last October about its financial disclosures, Rep. James Greenwood, chairman of a key congressional subcommittee, told Reuters on Wednesday.

David Duncan, who managed Andersen's audits of Enron, expressed concerns to the former energy trading giant on October 15 after seeing a rough draft of its third-quarter 2001 financial results press release, Greenwood, who chairs the House Energy and Commerce subcommittee on Oversight and Investigations, said in an interview.

Greenwood, a Pennsylvania Democrat, said Enron replied that it had considered such concerns and was satisfied with the release.

That release ultimately helped trigger a series of events leading with amazing speed to the biggest bankruptcy in US history and the collapse of the world's largest energy trader.

The revelation about Duncan's concerns came on the eve of a hearing before Greenwood's panel where Duncan was expected to appear under subpoena, but to refuse to testify under his Fifth Amendment rights.

Greenwood said he thought it "highly unlikely" that Duncan, dismissed by Andersen for allegedly ordering employees to shred Enron-related documents, would testify before the House Energy and Commerce Committee's oversight and investigations panel.

Duncan was interviewed for more than four hours on January 16 by committee investigators in Washington about his role in Andersen's audits of Houston-based Enron.

Greenwood said investigators learned that "in August Enron and Andersen discovered an accounting error on certain transactions involving the Raptor entities."

The entities were among hundreds of off-balance-sheet partnerships, known as special-purpose entities, used by Enron to keep debt off its books and enhance its earnings.

Duncan received press release draft

Greenwood said investigators learned that later "on October 12, he (Duncan) received a draft of Enron's anticipated press release regarding third-quarter 2001 results."

The draft "indicated Enron's intentions to record numerous charges against income for the quarter totaling approximately $1 billion," Greenwood said, citing Duncan's statements and Andersen internal memos obtained by the committee.

"He (Duncan) raised some concerns with Enron on October 15. They responded that they considered all these issues in their normal press release review and they were satisfied with it," Greenwood said.

The next day Enron issued its press release, reporting its first quarterly loss in more than four years and a charge against earnings of more than $1 billion on poorly performing businesses. It emerged that the company also had written down shareholders' equity by $1.2 billion as a result of soured transactions with some of its outside partnerships.

After saying on November 8 that it had overstated its earnings dating back to 1997 by $600 million, Enron suffered an acute crisis in investor confidence and a rapid succession of credit downgrades that quickly led to bankruptcy court.

In a related development, another congressional panel on Wednesday released a letter written by the CEO of Andersen in which he corrected portions of December 12 testimony on Enron.

Testimony called 'imprecise'

Joseph Berardino, chief executive of the Big Five firm, wrote in the January 21 letter that part of his testimony to the House Financial Services Committee was "imprecise."

"The essential substance of what I reported to you was correct. However, I have since learned additional details," Berardino wrote to Ohio Republican Rep. Michael Oxley, who chaired the hearing, the first into Enron's downfall.

Oxley had asked Berardino earlier this month by letter to clarify and correct any inaccuracies in his testimony. "As you know, providing false testimony to Congress is a serious matter," Oxley wrote to the Andersen CEO.

Berardino said in his January 21 reply to Oxley that he was unaware when he testified of certain details concerning Chewco, an Enron outside partnership funded partly by Barclays Bank.

A portion of the equity provided by Barclays to Chewco came in the form of certificates bought from intermediate entities linked to Chewco, raising doubts about whether Chewco qualified to be treated as an outside partnership, Berardino said.

Moreover, he told Oxley, a separate cash collateral agreement involving Barclays and another Enron partnership called JEDI raised further questions about the Chewco accounting treatment. Not all these arrangements were known to Berardino when he testified to the committee, he said.

Neither Enron nor Chicago-based Andersen were immediately available for comment. Enron fired Andersen as its auditor on January 17. Andersen said its relationship with Enron ended when the company filed for bankruptcy on December 2.

Both organizations are under investigation by the Securities and Exchange Commission and at least eight congressional committees. The Justice Department is pursuing a criminal probe of Enron.

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