And there’s more to come. Arthur Andersen, Enron’s outside accountants, may soon be back in the news, with top executives at headquarters in Chicago trying to offload blame for document-shredding onto the Houston office, where Enron’s audits were carried out. NEWSWEEK has learned that Andersen’s internal investigation has provisionally cleared the firm’s top managers of responsibility for the document-shredding disclosed a month ago. The shredding began after a lawyer in the head office sent her Houston colleagues a copy of Andersen’s document-retention policy. But Andersen’s investigators have tentatively concluded that the shredding had nothing to do with the letter. Rather, investigators believe, the shredding resulted from collusion between Enron employees and members of Andersen’s Houston office. It’s not clear what evidence–if any–backs up that allegation. It’s a sign of the times that Andersen is so jumpy, it has hired two other law firms that are monitoring the investigation. Asked for comment, an Andersen spokesman would say only that the internal investigation is continuing and that “no conclusions have been reached.”
With hearings by about 10 congressional committees and subcommittees, endless lawsuits, civil probes, criminal probes and a treasure trove of documents (many of them available on the House Energy and Commerce Committee’s dandy Web site), it seems as if the more answers we get, the more new questions are raised. Last Tuesday senators teed off on Lay for 50 minutes, safe in the knowledge that he would utter only variations of “I must respectfully decline to answer, on Fifth Amendment grounds.” (Imagine if the pols had known about Lay’s Friday SEC filing: he’d sold $70 million of his Enron stock back to the company last year, some of it while he was urging employees to buy.) In sharp contrast, whistle-blower Watkins, publicly mum since the House energy committee outed her a month ago, testified for hours and defended Lay. “I believed, and I still believe, that Mr. Lay is a man of integrity,” she said. Why did Enron do sleazy things? She blames Lay’s subordinates Skilling and Fastow: “I think they intimidated a number of people into accepting some structures that were not truly acceptable.”
While the human drama plays out on TV and the front pages, the real discussion about how to eliminate future Enrons is playing out mostly on the business pages, with unsexy but essential measures like changing how companies calculate profits, account for some of their assets, produce financial statements and disclose stock sales by insiders. The recent panic in the market over anything that looks remotely like hinky accounting has produced more reform pressure in the two months since Enron’s bankruptcy than former SEC chief Arthur Levitt could generate in eight years of fighting on behalf of investors. But no matter how much you change the rules, it’s hard to force people to call things as they are, as opposed to the way that their firms–and their clients–want them to be. An illustration: NEWSWEEK has obtained confidential legal documents showing that Enron knew about a disastrous accounting error months before mentioning it in a crucial Oct. 16 meeting with investors. And that lawyers probing Sherron Watkins’s allegations of accounting irregularities found the error, yet didn’t put it in their report.
A memo written by Max Hendrick III of Vinson & Elkins, Enron’s outside law firm, shows that Enron’s chief accounting officer knew in August that Enron had made a huge mistake accounting for one of its controversial off-the-books partnerships. (It doesn’t say when the accounting officer, Richard Causey, learned of the mistake.) “Causey pointed out that an unfortunate error will require an adjustment to the third quarter [financial] statements” during an Aug. 31 interview, the memo says. “Causey characterizes this as a simple mistake that now requires correction.” That “simple mistake” forced a $1.2 billion reduction of Enron’s net worth. That reduction–and Enron’s failure to produce a quick, clear explanation for it–sowed mistrust of all Enron’s numbers. That mistrust was a crucial factor in Enron’s implosion. So how could V&E not mention the bookkeeping problem in its Oct. 15 report to Enron? V&E’s answer: that matter was outside the scope of the report. Why did Enron wait months to disclose the huge and crucial bookkeeping error? The company declined to comment.
Almost any blame game seems plausible when it comes to Enron these days. Take the Internet sendup of those Sprint PCS ads that blame “bad cellular’’ for laughable miscommunications: here’s the Enron version. “The Arthur Andersen partner said, ‘Ship the Enron documents to the Feds,’ but the secretary heard, ‘Rip the Enron documents to shreds’.” Yes, it’s a joke. But not everyone is laughing.
