Partner Tells How He Heard of Policy

HOUSTON —  A senior member of Arthur Andersen’s technical accounting unit testified Thursday that he was unaware of the firm’s document-retention policy until an in-house attorney brought it to his attention last fall.

John Stewart, the senior partner of Andersen’s Professional Standards Group and a 30-year veteran of the firm, said he learned of the policy in a conversation with in-house attorney Nancy Temple in late September or early October.

Andersen’s policy calls for its accountants to preserve only records needed to back up their audit conclusion and plays a central role in Andersen’s trial on obstruction of justice.

The testimony from Stewart, summoned as a defense witness, actually appeared to support one of the prosecution team’s contentions, that Andersen executives started promoting the policy only after Enron’s financial situation started to deteriorate.

Stewart said the issue arose as partners debated internally over what to do with a series of memoranda regarding disputes between the technical-accounting unit and the Houston-based team auditing Enron Corp.

Lead Andersen attorney Rusty Hardin called Stewart to the witness stand to detail the disputes and to attempt to shed light on the intent of Temple, who has refused to testify.

Prosecutors contend that Temple intended to obstruct justice when she sent an e-mail to the Houston office Oct. 12 urging Enron team members to comply with the document policy.

Stewart said he learned in September that the firm’s Enron auditors had drafted a series of memos that misrepresented his advice on how to treat a set of off-the-books Enron partnerships, and that Andersen ordered the documents to be corrected to reflect his initial advice.

Stewart said Temple told him that the firm wanted to retain both the original memos and the corrected version, but not drafts of either.

But he said the idea of keeping the records from the SEC “didn’t come into my mind.”

Earlier Thursday, Michael Jones, a partner from Andersen’s London office, described his co-workers’ document destruction there last fall as part of a badly needed office cleanup, not an attempt to conceal files from the SEC.

Jones said the cleanup had been planned for some time, but under cross-examination from prosecutors, he conceded that he accelerated the effort after receiving a phone call from David Duncan, the lead partner auditing Enron, around Oct. 23, asking him to comply with firm policy. He said Duncan’s tone made the matter seem urgent.

Andersen also lost a procedural battle Thursday when U.S. District Judge Melinda Harmon ruled that prosecutors could question witnesses about whether investigators mistreated them during pretrial interviews.

Andersen has suggested that pressure from prosecutors prompted Duncan to plead guilty to obstruction of justice, and the firm had argued that testimony about how investigators dealt with other witnesses was irrelevant to that point.

Asked outside the courthouse Thursday whether he believed Andersen was receiving a fair trial, Hardin said, “I think this jury is going to give us a fair verdict.”