A federal grand jury in Houston last Thursday indicted Enron Corp.’s former auditor, Arthur Andersen LLP, for its role in the scandal that has engulfed the Houston energy trader. It was the first criminal charge to be handed down against a player in the unfolding drama.

The one-count indictment, which was sought by the Department of Justice (DOJ), charged Arthur Andersen with obstruction of justice for “knowingly, intentionally and corruptly” ordering employees to shred accounting documents that allegedly would have shed light on the financial improprieties and irregularities at the now-bankrupt Enron.

DOJ had warned the Chicago-based Big Five accounting firm that criminal charges were imminent after the company rejected a government deadline to either plead guilty as part of a plea bargain or face an indictment for destroying Enron-related records. The auditor is charged with shredding documents after it was informed that the Securities and Exchange Commission had begun a probe into Enron and its questionable off-the-book partnerships.

The Andersen partners assigned to Enron launched a “wholesale destruction of documents at Andersen’s office in Houston” last Oct. 23, according to the indictment. “During the next few weeks, an unparalleled initiative was undertaken to shred physical documentation and delete computer files. Tons of paper relating to the Enron audit were promptly shredded as part of the orchestrated” effort.

“The shredder at the Andersen office at the Enron building was used virtually constantly and, to handle the overload, dozens of large trunks filled with Enron documents were sent to Andersen’s main Houston office to be shredded,” the indictment continued. “A systematic effort was also…carried out to purge the computer hard-drives and e-mail system of Enron-related files.”

Because of the sheer size of the task, Andersen employees in Portland, OR; Chicago and London were called upon to destroy documents as well, the indictment said.

In a letter delivered to DOJ late Wednesday, Arthur Andersen attorneys called the department’s evidence against the company “flimsy,” and accused DOJ of a “gross abuse of government power.” The attorneys signaled that Arthur Andersen had no intention of pleading guilty.

The indictment on obstruction-of-justice charges undoubtedly will speed up the mass exodus of Arthur Andersen’s clients, and put the kibosh on any outside interest to merge with the embattled auditor. The latest client to leave Arthur Andersen was Valero Energy Corp. Arthur Andersen could be forced to follow Enron into bankruptcy, some speculate, reducing the industry to the Big Four accountants.

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