```

[House Hearing, 107 Congress]
[From the U.S. Government Publishing Office]

      DESTRUCTION OF ENRON-RELATED DOCUMENTS BY ANDERSEN PERSONNEL

=======================================================================

                                HEARING

                               before the

                            SUBCOMMITTEE ON
                      OVERSIGHT AND INVESTIGATIONS

                                 of the

                    COMMITTEE ON ENERGY AND COMMERCE
                        HOUSE OF REPRESENTATIVES

                      ONE HUNDRED SEVENTH CONGRESS

                             SECOND SESSION

                               __________

                            JANUARY 24, 2002

                               __________

                           Serial No. 107-80

                               __________

       Printed for the use of the Committee on Energy and Commerce

 Available via the World Wide Web: http://www.access.gpo.gov/congress/
                                 house

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                            WASHINGTON : 2002
____________________________________________________________________________
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                               __________
                    COMMITTEE ON ENERGY AND COMMERCE

               W.J. ``BILLY'' TAUZIN, Louisiana, Chairman

MICHAEL BILIRAKIS, Florida           JOHN D. DINGELL, Michigan
JOE BARTON, Texas                    HENRY A. WAXMAN, California
FRED UPTON, Michigan                 EDWARD J. MARKEY, Massachusetts
CLIFF STEARNS, Florida               RALPH M. HALL, Texas
PAUL E. GILLMOR, Ohio                RICK BOUCHER, Virginia
JAMES C. GREENWOOD, Pennsylvania     EDOLPHUS TOWNS, New York
CHRISTOPHER COX, California          FRANK PALLONE, Jr., New Jersey
NATHAN DEAL, Georgia                 SHERROD BROWN, Ohio
STEVE LARGENT, Oklahoma              BART GORDON, Tennessee
RICHARD BURR, North Carolina         PETER DEUTSCH, Florida
ED WHITFIELD, Kentucky               BOBBY L. RUSH, Illinois
GREG GANSKE, Iowa                    ANNA G. ESHOO, California
CHARLIE NORWOOD, Georgia             BART STUPAK, Michigan
BARBARA CUBIN, Wyoming               ELIOT L. ENGEL, New York
JOHN SHIMKUS, Illinois               TOM SAWYER, Ohio
HEATHER WILSON, New Mexico           ALBERT R. WYNN, Maryland
JOHN B. SHADEGG, Arizona             GENE GREEN, Texas
CHARLES ``CHIP'' PICKERING,          KAREN McCARTHY, Missouri
Mississippi                          TED STRICKLAND, Ohio
VITO FOSSELLA, New York              DIANA DeGETTE, Colorado
ROY BLUNT, Missouri                  THOMAS M. BARRETT, Wisconsin
TOM DAVIS, Virginia                  BILL LUTHER, Minnesota
ED BRYANT, Tennessee                 LOIS CAPPS, California
ROBERT L. EHRLICH, Jr., Maryland     MICHAEL F. DOYLE, Pennsylvania
STEVE BUYER, Indiana                 CHRISTOPHER JOHN, Louisiana
GEORGE RADANOVICH, California        JANE HARMAN, California
CHARLES F. BASS, New Hampshire
JOSEPH R. PITTS, Pennsylvania
MARY BONO, California
GREG WALDEN, Oregon
LEE TERRY, Nebraska

                  David V. Marventano, Staff Director

                   James D. Barnette, General Counsel

      Reid P.F. Stuntz, Minority Staff Director and Chief Counsel

                                 ______

              Subcommittee on Oversight and Investigations

               JAMES C. GREENWOOD, Pennsylvania, Chairman

MICHAEL BILIRAKIS, Florida           PETER DEUTSCH, Florida
CLIFF STEARNS, Florida               BART STUPAK, Michigan
PAUL E. GILLMOR, Ohio                TED STRICKLAND, Ohio
STEVE LARGENT, Oklahoma              DIANA DeGETTE, Colorado
RICHARD BURR, North Carolina         CHRISTOPHER JOHN, Louisiana
ED WHITFIELD, Kentucky               BOBBY L. RUSH, Illinois
  Vice Chairman                      JOHN D. DINGELL, Michigan,
CHARLES F. BASS, New Hampshire         (Ex Officio)
W.J. ``BILLY'' TAUZIN, Louisiana
  (Ex Officio)

                                  (ii)

                            C O N T E N T S

                               __________
                                                                   Page

Testimony of:
    Andrews, C.E., Senior Executive, Andersen LLP; Michael C. 
      Odom, Audit Partner, Andersen LLP; Dorsey L. Baskin, Jr., 
      Managing Director, Professional Standards Group, Andersen 
      LLP; and Nancy Temple, Attorney, Andersen LLP..............    30
    Duncan, David, Former Andersen Partner-in-Charge of Enron 
      Engagement.................................................    26

                                 (iii)

  

 
      DESTRUCTION OF ENRON-RELATED DOCUMENTS BY ANDERSEN PERSONNEL

                              ----------                              

                       THURSDAY, JANUARY 24, 2002

                  House of Representatives,
                  Committee on Energy and Commerce,
              Subcommittee on Oversight and Investigations,
                                                    Washington, DC.
    The subcommittee met, pursuant to notice, at 9:40 a.m., in 
room 2322, Rayburn House Office Building, Hon. James C. 
Greenwood (chairman) presiding.
    Members present: Representatives Greenwood, Bilirakis, 
Stearns, Burr, Whitfield, Bass, Tauzin (ex officio), Deutsch, 
Stupak, Strickland, DeGette, John, Rush, and Dingell (ex 
officio).
    Also present: Representatives Ganske, Fossella, Waxman, 
Markey, Engel, Green and Jackson-Lee.
    Staff present: Tom DiLenge, majority counsel; Jennifer 
Safavian, majority counsel; Mark Paoletta, majority counsel; 
David Cavicke, majority counsel; William Carty, legislative 
clerk; Peter Kielty, legislative clerk; Shannon Vildostegui, 
majority counsel; Edith Holleman, minority counsel; Consuela 
Washington, minority counsel; and Jonathan Cordone, minority 
counsel.
    Mr. Greenwood. The hearing will come to order. The Chair 
recognizes himself for the purposes of making an opening 
statement.
    We are here this morning to confront one critical aspect in 
the collapse of the Enron Corporation. This is only the first 
step in a thorough and rigorous examination by the Energy and 
Commerce Committee into what the chief executive officer of 
Andersen, Mr. Berardino, referred to in recent testimony as a 
tragedy. It is surely that. More than 4,000 employees lost 
their jobs. Thousands more lost their life savings. Millions of 
investors, both great and small, watched in disbelief as $70 
billion in wealth vanished, but not before 600 Enron employees 
divvied up more than a $100 million in bonuses this past 
November.
    The essential tenet in our Nation's unparalleled 
achievement is that private enterprise in a well-regulated 
marketplace is a great engine for human freedom, innovation, 
improved standards of living, better quality of life, and 
individual liberty. That is why when the marketplace endures a 
collapse such as this, we have a duty to restore confidence by 
putting real and effective safeguards in place for the future 
and by bringing any wrongdoing into the bright light of public 
scrutiny so that those responsible suffer the consequences.
    Today's hearing will explore how one of the world's 
premiere professional organizations could have actually 
compounded the catastrophic business failure by allowing the 
systematic destruction of Enron-related audit documents at a 
time when it was clear to everyone, certainly to Andersen, that 
government investigators and civil litigants would soon be 
demanding the documents needed to understand how things could 
have gone so wrong so quickly.
    To its credit, Andersen voluntarily disclosed the 
destruction to this committee and the Department of Justice and 
then promptly provided us with most requested information on 
this subject.
    While committee investigators have not had a full 
opportunity to interview all those involved, and while we have 
not yet received all of the documentation requested, we have 
interviewed the key witnesses, including Mr. Duncan, Ms. Temple 
and Mr. Odom, of whom the latter two will be testifying today. 
I thank these three individuals for their timely cooperation 
with the committee. I am, however, disappointed that while Mr. 
Duncan has complied with the subpoena requiring his appearance 
today, by invoking his fifth amendment rights, as we expect he 
will today, he will hamper the important work of this committee 
in our search for the truth about what transpired at Andersen 
during the critical period we are examining.
    But before we begin the litany of what we know and what we 
have learned, I want to say what I find most troubling. It is 
clear that scores of professionals and support staff were 
involved in the shredding of paper and deletion of computer 
files relating to the Enron audit. Yet to date, committee 
investigators have been unable to locate or learn about a 
single Andersen employee who raised any concerns or objections 
about destroying Enron-related documents, even after the SEC 
inquiry became public. That behavior is a far cry from the 
American Institute of Certified Public Accountants first 
principle of professional conduct, which states that, quote, in 
carrying out their responsibilities as professionals, members 
should exercise sensitive professional and moral judgments in 
all of their activities.
    So what have we learned so far? Some key points seem 
uncontrovertible. First, there was an unusually high degree of 
concern throughout the Andersen chain of command in the fall of 
2001 about ensuring that individuals working specifically on 
Enron matters complied with Andersen's document retention 
policies, which might better be termed destruction policies 
since they call for disposal of all nonessential draft or 
conflicting documentation relating to an audit, including the 
e-mails, voicemails and desk files of those working on the 
audit.
    This may be commonplace and even appropriate in most cases, 
but when a high-profile client is about to implode in an 
accounting scandal, those, quote, nonessential documents may be 
just what investigators and litigants will be looking for, and 
it is clear that Andersen's senior management knew just that. 
How could they not, given their recent and embarrassing 
experience with the firm's audit of Waste Management, Inc.?
    Second, Andersen's legal group waited until November 9, 
after Andersen had already received a subpoena from the 
Securities and Exchange Commission and had been named in at 
least one civil lawsuit relating to Enron, to give instructions 
to its Enron audit personnel to suspend normal document 
destruction policies. We now know the destruction of records 
continued up to that last day, maybe even beyond, according to 
Andersen and others.
    Andersen's managing partner and CEO Mr. Berardino said over 
the weekend that the firm's policy was that all document 
destruction should have stopped once Andersen learned in mid-
October about the SEC inquiry into Enron's related party 
transaction. So why didn't the firm advise its personnel of 
that until nearly 3 weeks later?
    Third, Andersen has sought to place the blame for this 
debacle solely on Mr. Duncan, the partner in charge of the 
Enron account, who, according to Andersen, orchestrated an 
expedited effort among the engagement team to destroy documents 
after he learned of the SEC inquiry. Mr. Duncan surely has a 
lot of explaining to do, given the facts as the committee has 
uncovered them. He certainly is guilty of poor judgment, if not 
worse. Even if he truly believed he was instructed by 
Andersen's legal counsel on October 12 to clean up the Enron 
files, as he has told the committee investigators, that does 
not explain why he waited until October 23, after learning of 
the SEC inquiry, to call an urgent meeting of his Enron audit 
managers to discuss compliance with the firm's document 
retention and destruction policies. It is also inexplicable 
that he would not seek legal counsel before doing so, rather 
than relying on an e-mail from Ms. Temple sent prior to the SEC 
inquiry.
    Fourth, the now well-publicized e-mails from Ms. Temple to 
Andersen's personnel working on Enron matters in the mid-
October timeframe to remind them of the firm's retention and 
destruction policies were by all accounts highly unusual and of 
questionable timing. She has told committee investigators that 
her intent was to ensure that proper documentation of key 
conclusions was being generated and retained at this critical 
juncture in the Enron account. We have no reason at this point 
to doubt her good intentions, but as she herself conceded, the 
policy also requires the destruction of all other records, and 
it was absolutely reasonable for recipients of those e-mails to 
view her reminders in exactly that way.
    And the fact that she never acted to instruct or advise 
Andersen personnel otherwise until November 9 only served to 
confirm such interpretations and to compound these errors. 
Indeed, the November 10 memorandum confirming her November 9 
voicemail to Mr. Duncan makes plain that Andersen's legal group 
believed the obligation to start preserving all Enron-related 
documents did not kick in until that time. This is particularly 
hard to swallow, given what Andersen already knew by then, 
accounting errors with billion-dollar impacts, serious 
allegations from within Enron about accounting scandals, 
internal investigations and reviews by Enron and Andersen, a 
plummeting Enron stock price, an SEC inquiry, civil lawsuits 
and daily press reports raising the specter of much worse to 
come.
    This is not to say that Ms. Temple alone was at fault. It 
appears clear that she was consulting closely with her 
superiors in that legal group, as well as outside counsel that 
had already been retained by Andersen by the mid-October time 
period.
    Perhaps it is too late to save the reputations and careers 
of many of those caught up in the web of the Enron collapse, 
but for those in business and the professionals who may watch 
these proceedings, it would be wise to recall the admonition of 
an ancient Japanese proverb: The reputation of a thousand years 
may be determined by the conduct of 1 hour.
    The Chair would note that a number of members of the full 
Energy and Commerce Committee who are not members of this 
subcommittee have asked to participate in today's hearing. We, 
of course, are happy to do that. While the members of the 
subcommittee will be recognized for opening statements, the 
members of the full committee who are not members of the 
subcommittee will not be afforded the opportunity for opening 
statements, but will have the opportunity to ask questions, and 
I will now recognize the ranking member of the full committee 
Mr. Dingell for 5 minutes.
    Mr. Dingell. Mr. Chairman, you are most courteous and 
gracious. I commend you, Mr. Chairman, the chairman of the full 
committee Mr. Tauzin, and Mr. Deutsch for these hearings today, 
and I would note that we on this side are anxious to join you 
in an effort to develop all of the facts and to pursue 
wrongdoers as far as is necessary.
    We are here today to address a serious breach in corporate 
integrity, the destruction of documents by an accounting firm 
bearing on the corporate wrongdoing of its client and perhaps 
on its own wrongdoing, during a time when accounting wrongdoing 
was at issue in the press and a matter of regulatory attention. 
The event was either criminally stupid or stupidly criminal, or 
both. We must confront why were senior Arthur Andersen 
employees especially reminded by their lawyers to implement 
their document retention policy, in other words, get rid of 
papers, just as concerns about Enron's accounting were reaching 
a fever pitch.
    Why didn't Arthur Andersen's litigation attorney or its 
outside litigation counsel send Andersen's Enron team a memo on 
October 22, the day Enron announced an SEC inquiry, and tell 
them to retain all documents? Mr. Berardino, who refuses to be 
with us today, told us Sunday on Meet the Press that Andersen's 
policy was to do so, yet Ms. Temple did not write such a memo 
until November 10, after Andersen had received a subpoena. Why 
did Arthur Andersen management let this happen? Why did anyone 
at Andersen in their right mind think that document 
destruction, when an SEC inquiry involving accounting practices 
was under way, was in any way appropriate? Was that the real 
Andersen policy, which is what company officials told our staff 
in interviews?
    Today we start to learn what happened. Today we start the 
process of holding people accountable. Today we start to 
determine what kind of tough action is required to prevent this 
kind of affront to our system of laws from happening again. And 
if these witnesses can't tell us, Mr. Chairman, I look forward 
to hearing from others who can. And I suspect we will have to 
hear from others before we have gotten the answers we seek 
today on these matters.
    I also look forward to additional hearings on the 
accounting skullduggery that flourished. How should all of 
these shadowy special partners and partnerships have been 
disclosed; and how were they not and why not? How did Arthur 
Andersen's overlapping roles as outside and insider auditors 
and its conflicting roles as auditors and consultant hurt full 
and fair disclosure? How did the lack of transparency, 
accountability and enforcement for the accounting industry 
enable the Enron shell game to go undiscovered? Or was it 
discovered and not told? How has the additional legal 
perfection and protection given the accounting industry by 
Congress over President Clinton's veto hurt the ability of 
victims to seek redress?
    What happened here? Are Andersen's document destruction and 
accounting shenanigans a matter of individual conceit of--
wayward individuals intent on protecting their own careers and 
futures? Are those a matter of corporate conceit--a company 
thinking that it was above the law and acting in that fashion? 
Are these a matter of industry conceit--an industry thinking 
that its powerful political patrons would protect it once again 
as they did when we sought to see to it that the practice of 
consulting and auditing were separated?
    I look forward, Mr. Chairman, to a most vigorous hearing, 
and we on this side look forward to working with you and seeing 
to it that we have a most vigorous inquiry and pursuit of 
wrongdoing and look forward to a continuation and expansion of 
a vigorous, thorough and careful investigation. Thank you, Mr. 
Chairman.
    [The prepared statement of Hon. John D. Dingell follows:]

    Prepared Statement of Hon. John D. Dingell, a Representative in 
                  Congress from the State of Michigan

    We are here today to address a serious breach in corporate 
integrity--the destruction of documents by an accounting firm bearing 
on the corporate wrongdoing of its client during a time the accounting 
wrongdoing was at issue in the press and a matter of regulatory 
attention. This destruction was criminally stupid, or stupidly 
criminal.
    Why were senior Arthur Andersen employees especially reminded by 
their lawyers to implement their document retention policy--in other 
words, to get rid of paper--just as concerns about Enron's accounting 
were reaching a fever pitch? Why didn't Arthur Andersen's litigation 
attorney or its outside litigation counsel send Andersen's Enron team a 
memo on October 22--the day Enron announced an SEC inquiry--and tell 
them to retain all documents? Mr. Berardino, who refused to testify 
today, told us Sunday on ``Meet the Press'' that Andersen's policy was 
to do so. Yet Ms. Temple did not write such a memo until November 10, 
after Andersen received a subpoena.
    Why did Arthur Andersen management let it happen? Why did anyone at 
Arthur Andersen in their right mind think that document destruction 
when an SEC inquiry involving accounting practices was underway was 
appropriate? Was that the real Andersen policy, which is what company 
officials told our staff in interviews?
    Today we start to learn what happened. Today we start the process 
of holding people accountable. Today we start to determine what tough 
action is required to prevent this kind of affront to our system of 
laws from ever happening again. And if these witnesses can't tell us, 
Mr. Chairman, I look forward to hearing from those who can.
    I also look forward to additional hearings on the accounting 
skullduggery that flourished. How should all of these shadowy special 
partnerships have been disclosed? How did Arthur Andersen's overlapping 
roles as outside and inside auditors, and its conflicting roles as 
auditor and consultant, hurt full and fair disclosure? How did the lack 
of transparency, accountability, and enforcement for the accounting 
industry enable the Enron shell game to go undiscovered? How has the 
additional legal protection given the accounting industry by Congress 
over President Clinton's veto hurt the ability of victims to seek 
redress?
    What happened here? Are Arthur Andersen's document destruction, and 
accounting shenanigans, a matter of individual conceit--wayward 
individuals intent on protecting their careers? Are these a matter of 
corporate conceit--a company thinking it was above the law? Are these a 
matter of industry conceit--an industry thinking that its powerful 
political patrons would protect it once again?
    I look forward to a most vigorous hearing, and the continuation and 
expansion of a most vigorous investigation.

    Mr. Greenwood. The Chair thanks the ranking member, and 
would note that the bipartisanship has been exemplary up to 
date. I expect it will continue, and we will pursue each and 
every one of the issues raised by the gentleman from Michigan.
    Mr. Dingell. Mr. Chairman, we do want to note that the 
inquiry to date has been conducted in a proper, thorough, fair, 
impartial, bipartisan fashion. For that we commend you.
    Mr. Greenwood. The Chair thanks the gentleman.
    The Chair recognizes the chairman of the full committee, 
Mr. Tauzin, for an opening statement.
    Chairman Tauzin. Thank you, Mr. Chairman. Let me echo those 
sentiments, Mr. Dingell, and express my full appreciation for 
the fact that this investigation began with a bipartisan staff, 
a team of investigators, and your cooperation and assistance 
has been deeply appreciated, will continue to be appreciated as 
we go forward. You can be assured again that we will keep you 
and all of your staff thoroughly informed as we go forward, 
sir, and involved.
    Mr. Chairman, let me personally thank you and the staff of 
our committee for the extraordinary work already done on this 
investigation. Let me first explain where we are, and hopefully 
where we are going, with this investigation. Last year when we 
announced it, we made it clear that before we held public 
hearings, we intended to get the facts. We intended to have our 
investigators interview the witnesses, dig up the documents and 
to get the evidence before we actually put witnesses before our 
committee to explain what happened to the American public and 
to learn ourselves how we might, No. 1, understand, and, 
second, deal with this incredible tragedy for American 
investors, Enron employees and other creditors of this massive 
corporation.
    When we made that announcement, we indeed put that 
investigative team to work, and we have learned a lot. The 
Washington Post detailed some of what we have learned, 
including instances where Enron Corporation dealing in numerous 
partnerships, using the corporate equity to borrow money and to 
accumulate debt that was not disclosed to investors and others 
on their balance sheet, miraculously and through accounting 
tricks and gimmicks converted that debt into a phony income 
that never appeared and perhaps never would appear to the 
corporation, and, as one of the whistleblowers wrote in a memo, 
perhaps not only misled, but fraudulently misled consumers and 
investors in this important corporation.
    At one point it is clear to our investigators and--through 
our reading of their results that this incredible corporation 
somehow suspended the rules of corporate ethics and perhaps 
even put corporate morality on vacation and accumulated massive 
amounts of debts that were not reported on its balance sheet 
and were somehow allowed to count as income, again income from 
these partnerships that never truly should have been counted as 
income, very much like the MicroStrategy case, where had its 
arrangements with NCR been reported authentically, 
realistically, MicroStrategy would have reported losses rather 
than enormous gains, and consumers and investors might have 
gotten the truth instead of a lot of phony baloney.
    The bottom line is that we are uncovering instances of 
corporate behavior that I think almost every corporation in 
America would abhor and would condemn, and we are preparing to 
lay it all out for the American public at a series of hearings 
on the Enron operations. That process was interrupted abruptly 
by an amazing admission by Arthur Andersen of a massive 
coordinated effort to destroy documents that may be extremely 
relevant to our investigation and to the investigation that we 
are working hand in glove with the SEC and now with the Justice 
Department.
    We will hear today of conversations and e-mails and 
discussions dating back to early fall about the problems at 
Enron and about the need for somebody to explain them properly 
to people in this country who are investing in this company, 
and at the same time a decision to invoke something known as a 
document retention policy.
    The chairman has put it correctly. The document retention 
policy which we have a copy of, vague in its language, can 
properly be described as a document retention and destruction 
policy. Why else would corporate employees and attorneys within 
Arthur Andersen have instructed its members, including Mr. 
Duncan, to expeditiously carry out the policy, even working 
overtime if necessary to complete it within a matter of weeks, 
the policy of getting rid of documents in the file? If it was 
simply a retention policy, a simple 1-hour process of locking 
the files would have done the job. Instead a massive overtime 
effort involving scores and scores of employees to get rid of 
documents, documents which we have sought, the SEC is seeking, 
and obviously the Justice Department is now interested in.
    I don't know whether crimes were committed, but it is clear 
to us that our investigation and other investigations have been 
impeded by this policy of destruction. We are going to learn a 
lot about it today. And the reason we have scheduled this 
hearing in advance of the Enron hearings is because our 
investigation depends upon the full cooperation of Arthur 
Andersen and Enron, its employees, in obeying the law, in 
retaining and providing to this committee and to other 
government agencies the documents relevant to this case, and we 
will brook no exception to that rule. So let the word go out to 
all those who currently work for these two firms that we fully 
expect their cooperation and we expect to receive all the 
documents that we request.
    I am disappointed that this is the first time in my tenure 
as chairman that I have had to sign subpoenas to compel the 
appearance of witnesses before our committee, not even until 
the Ford Firestone case were we obliged to sign a subpoena. I 
am disappointed we have reached this point, and I suspect we 
will be there again when we conduct our full committee hearings 
on Enron. But let me make it clear, this committee will cut no 
one any slack as we go forward. We are going to lay the facts 
down, and we are going to try to find some answers and 
hopefully some solutions that will give American investors and 
consumers some confidence in the system again. And where we 
have made policy that needs to be changed, we will boldly face 
the fact that we need to strengthen those policies and those 
standards, and we will do so.
    And I want to thank again Mr. Dingell for his cooperation, 
and you, Mr. Chairman, for the extraordinary work you are 
doing. There are many hours yet to go, but before we finish; I 
believe we are going to lay all the facts on the table for the 
American people to make their own decisions, but more 
importantly, if there has been corporate wrongdoing, we will 
unroot it. If there has been personal or corporate attempts to 
hide the facts, we will uncover them, and people will answer 
for them, and in the end we are going to do our best to make 
sure something like this awful tragedy never occurs again.
    We are going to learn, for example, why Enron decided to 
change pension managers in the middle of this crisis and 
therefore invoke a 60-day period when its own employees could 
not dump the stock as some of its corporate officers were 
dumping. We are going to learn a lot before we are through, but 
in the end we are going to try and get some answers, too, and 
the questions raised by you, Mr. Chairman and Mr. Dingell, are 
deeply appropriate. And before we have finished, we hopefully 
will pass some changes in policies and laws that will help 
ensure that investors and consumers can have some confidence 
again in the audit systems, in the reporting systems, in the 
way in which Americans learn whether corporations are really 
earning money or just accumulating debt. Thank you, Mr. 
Chairman.
    [The prepared statement of Hon. W.J. ``Billy'' Tauzin 
follows:]

 Prepared Statement of Hon. W.J. ``Billy'' Tauzin, Chairman, Committee 
                         on Energy and Commerce

    Thank you Chairman Greenwood. And let me commend you for putting 
together this morning's hearing, which will take us on a path of 
inquiry we certainly did not expect to be on when the Committee began 
ramping up its Enron investigation in December--the destruction of 
potentially critical documents.
    Yet this is a path we must--and will--follow not only so we can 
eventually piece together as fully as possible the facts surrounding 
Enron's financial collapse, but also so we can make very, very clear 
that this Committee will not allow its investigations to be hindered in 
any way.
    Overall, our wide-ranging investigation, which we will address in 
more detail at next week's full Committee hearings, involves sorting 
out the complex bookkeeping and various parties and policies that had a 
role in that collapse. It also involves a dogged pursuit of the various 
leads--wherever they take us--that might explain why people did what 
they did and how things went so wrong.
    Only with such full information will we then be able to consider 
how Congress might address the policy issues raised by Enron's actions. 
Which brings me back to the disturbing topic of today's hearing: Enron-
related audit documents were destroyed by employees of Andersen--the 
company's own accounting firm--when signs of outside investigations 
were emerging early this past fall.
    So we have a situation where the Committee is trying to conduct a 
thorough, in-depth investigation and now it is facing destruction of 
documents that may well have provided critical answers to its 
questions.
    The loss of these documents certainly came as a surprise to our 
Committee investigators when they were invited by Andersen to look 
through its Enron materials earlier this month. And the loss certainly 
is hindering our ability to create a full picture of what Andersen knew 
about Enron's bookkeeping.
    The document destruction raises several troubling questions about 
Andersen's relationship with Enron and role in its collapse.
    Our witnesses today should help us sort through some of the issues 
raised by these troubling activities.
    For example, why did key Andersen employees suddenly decide--in 
October, just as it was becoming clear that outside investigation was 
imminent--to enforce document destruction policies? And why did 
destruction continue for several weeks after investigations commenced, 
which was clearly against Andersen policy, according to Mr. Berardino?
    The destruction also raises some broader questions about document-
retention policies that we may have to address: For example, how do 
corporations implement these policies, particularly when investigations 
may be developing? Is this a widespread, though under-appreciated, 
problem?
    Revelations of document destruction have severely harmed Andersen's 
reputation. I hope what we learn today will help us get a more accurate 
picture of Andersen's policies, and whether the actions it took 
represent broader problems within the company, the industry as a whole, 
or the mistaken decisions of a handful of individuals.
    In the end, what we gather should help us understand more fully 
where we are in our investigation, and where we need to look next as we 
proceed into some of the substantive issues involving Enron directly.
    There is, however, another message this hearing should impart--one 
highlighted by emerging news of document destruction at Enron, now 
under investigation by the FBI: This Committee takes document 
destruction very seriously. It will not allow efforts to impede its 
investigations to go unpunished.
    Thank you again, Mr. Chairman.

    Mr. Greenwood. The Chair thanks the chairman and recognizes 
for an opening statement the ranking member of the 
subcommittee, the gentleman from Florida, Mr. Deutsch.
    Mr. Deutsch. Thank you, Mr. Chairman. You know, all the 
previous speakers have alluded to what the big picture of the 
Enron disaster is, and the big picture really is that the 
public accounting system and our capital market system failed, 
and that failure, in terms of the implication it has to our 
macroeconomy, potentially could be very, very significant.
    There, you know, was not an Enron prior to Enron. I take 
great exception to the Secretary of Treasury's comments right 
after Enron filing for bankruptcy that this was business as 
usual in America; that companies, you know, succeed, and 
companies fail. That is the case, but the seventh largest 
company in America effectively imploding in a matter of weeks 
has not happened before, should not happen again, and that is 
in a sense the big picture of what we are looking at and what 
we will end up being able to determine, and whether the issues 
were systemic or criminal or, you know, specific, I think we 
will determine, and this committee has shown in the past that 
we have incredibly competent staff and competent Members to get 
to that point.
    There are many issues as well that I think are part of 
that. I mean, obviously this hearing is a component of that, 
but there are many issues as well, and, again, just to put in 
perspective my--the chairman of the committee mentioned the 
figure of $100 million of bonuses that were given during the 
period of--before the implosion of Enron to management. There 
was also literally over a billion dollars, $1.3 billion of 
stock held by managers of Enron that was sold prior to Enron's 
implosion.
    We also again are aware of a number of political appointees 
in the administration who sold stock prior to the implosion of 
Enron. What we are also aware of, though, is that for the 
thousands of Enron employees and their 401(k)s, for them 
personally, many of whom were restricted from selling at least 
part of their stock, in some cases maybe all of their stock, 
for the lockout period, they also were very directly affected, 
but in an opposite--completely opposite way in that they lost 
over $1 billion. Now, that number is huge, but the number is 
personal, and, you know, we have seen people, you know, whether 
in television stories or congressional hearings, but some of my 
colleagues in the Houston area have talked to dozens of 
constituents that tell horror stories on a daily basis. I mean, 
just again in the scope, the pension fund, the Florida, lost 
$300 million.
    You know, K-Mart filed for bankruptcy this week. It was not 
a surprise. The public accounting system in a sense worked. 
Analysts, the public, anyone who was looking at their balance 
sheet could, in fact, understand what was going on. The 
question today, you know, obviously is are there other Enrons 
in our public markets; are there other people who have gamed--
other corporations and individuals who have gamed the system, 
whether through systemic problems or corrupt activities, that 
will implode tomorrow? And if there is not that transparency 
and faith in the capital system, there is a significant 
problem.
    What I would like to do, I know the chairman has said that 
members who are not on the subcommittee cannot take opening 
statements, but I haven't used my 5 minutes. I would like to 
yield to Mr. Green from Houston for the remainder of my 5 
minutes to talk about some of the specific issues.
    [The prepared statement of Hon. Peter Deutsch follows:]

Prepared Statement of Hon. Peter Deutsch, a Representative in Congress 
                       from the State of Florida

    Thank you, Mr. Chairman, for holding this very important hearing. 
What we are dealing with today is the alleged destruction of documents 
by Arthur Andersen, the accounting firm for Enron, which unexpectedly 
declared bankruptcy on December 2nd. While document destruction is the 
scope of today's hearing, securing confidence in our capital markets is 
the fundamental issue facing Congress.
    It was no surprise to anyone that Kmart Corporation declared 
bankruptcy this week. With Kmart, the system worked--but why in the 
case of Enron was the entire Wall Street Community shocked to witness 
the sudden collapse of America's seventh largest corporation? 
Sophisticated analysts were caught completely off guard, but the real 
tragedy are the thousands of workers and seniors who have lost billions 
in retirement savings, including a $300 million loss in Florida's 
pension system. If the analysts couldn't understand Enron's books, 
average shareholders and workers didn't stand a chance.
    We are going to address in detail why Andersen's Enron team 
continued to purge their files of drafts, memos, e-mails and the back-
and-forth discussions about accounting decisions that Enron made and 
Arthur Andersen approved--even after (1) Enron announced the initiation 
of an inquiry by the Securities and Exchange Commission into the 
financial accounting of certain off-the-books special purpose entities 
by Enron; (2) Enron established a special committee of its board to 
look into related party transactions and their inclusion in Enron's 
financial statements; (3) an Enron ``core consultation group'' 
established at Andersen was discussing litigation; and (4) Andersen 
retained litigation counsel.
    Not until November 10th, after Andersen itself received a subpoena 
was anyone told to stop implementing the company's document retention 
policy, thus finally halting the destruction of documents. Mr. 
Berardino told Meet the Press on Sunday that the company's policy was 
not to shred documents ``if you have a reasonable basis to anticipate 
an investigation.'' He stated that basis was not established until 
October 22nd, the day that the SEC publicly announced it inquiry. Mr. 
Berardino chose not to be here today to explain exactly what Andersen's 
policy is. But from our Subcommittee's investigation, it appears that 
Mr. Berardino's understanding of the policy was not observed by the 
relevant principals--not the lawyers, not the accountants. In fact, the 
lawyers kept reminding the Enron team to comply with the retention 
policy, which was a highly unusual move in a company in which complying 
with the written policy appeared to occur on an irregular basis at 
best. Perhaps that is why the three partners that Andersen put on 
``administrative leave'' are actually still in the office every day. 
Perhaps that explains why no one representing Andersen has--to this 
day--questioned these partners or their staff to get their version of 
what exactly happened.
    Perhaps, more importantly, Mr. Chairman, is the fact that companies 
are allowed to release financial reports to shareholders that no one 
can understand. Even the professional analysts recommending purchase of 
Andersen stock until at least October 24 cannot figure out how Enron 
was making money. Unlike Kmart's collapse, the rapid bankruptcy of 
Enron was a total shock. Employees, shareholders, public pension plans, 
professional investors and banks lost billions of dollars, and there 
are many tragic personal stories.Ensuring transparency in our financial 
accounting system is essential to securing public confidence in 
America's capital markets. Something has to be done to ensure that 
publicly held companies and their accountants provide accurate 
financial information that the average investor can understand.
    Mr. Chairman, I look forward to learning the facts about Andersen's 
role in the Enron debacle. I also look forward to additional hearings 
when we will focus on Enron's destruction of documents and the role of 
company management in the collapse of America's seventh largest 
corporation.

    Mr. Green. Thank you, Mr. Chairman, and I thank my 
colleague from Florida. I want to thank the chairman for 
allowing me as a member of the full committee to----
    Mr. Greenwood. If the gentleman would desist, it is going 
to be a courtesy that is going to have to be accorded to all of 
the Members, and the gentleman Mr. Green contacted me earlier 
and asked if he could participate in the hearing, and we said 
of course he can, but under our rules and under our procedures, 
members who are not on the subcommittee are not afforded the 
opportunity to make opening statements. I will be very liberal 
with the precursors and the introductions to the questions that 
Mr. Green wants to make to the witnesses, but I think we are 
going to need to draw a line with regard to the opening 
statements.
    Mr. Green. Thank you, Mr. Chairman. With that, I would just 
like permission to submit an opening statement.
    Mr. Greenwood. Certainly it will be a part of the record 
and----
    [The prepared statement of Hon. Gene Green follows:]

  Prepared Statement of Hon. Gene Green, a Representative in Congress 
                        from the State of Texas

    Mr. Chairman: I want to begin by thanking you for allowing me the 
opportunity to participate in today's important hearing.
    The Enron meltdown and the associated causes need to be throughly 
examined, and that all starts with today's hearing.
    Enron's economic collapse brought on by the decision makers at 
Enron and it's supposed watchdogs at Arthur Andersen have devastated 
investors, employees, creditors large and small, and our Houston 
Community as a whole.
    For only a 16 year old company, Enron was an integral part of 
Houston's art, medical, educational, and business community.
    Enron's name is even on our new Major League Baseball stadium.
    Enron's demise has taken the American Dream away from thousands of 
employees and stockholders, and I am hearing more and more of these 
stories every day.
    Former employees now have no income, no health insurance for their 
children, and no pension for their retirement and the fulfillment of 
the American dream.
    Our committee's job is not to prosecute, that will come if we can 
find someone at the Department of Justice who has not recuse 
themselves.
    No, our job is to investigate how we can prevent this from 
happening again.
    Over the last several weeks it appears that, Arthur Andersen has 
attempted to hide facts and destroy documents related to their work for 
the Enron Corporation.
    After being briefed by committee staff, reading all the recent news 
accounts, and talking to impacted Enron workers, I am stunned by the 
activity of Arthur Andersen a once venerated 88 year old company.
    What I find most interesting is that Arthur Anderson's experiences 
with both the Waste Management and Sunbeam corporations seemed to be 
only practice for their crown jewel of bankruptcies, Enron.
    I am hopeful that today's witnesses will be able to shed some light 
on Arthur Andersen's ``document destruction policy'' \1\. Not a 
document preservation policy.
---------------------------------------------------------------------------
    \1\ Arthur Anderson had a policy known as the ``documentation 
preservation policy'' that required their auditors to destroy all 
documents not specifically related to their final audit report. Ms. 
Temple sent an e-mail to Mr. Odom reminding him of this policy on Enron 
related documents.
---------------------------------------------------------------------------
    As a lawyer, I always understood that if their was even the hint of 
some kind of official investigation that it was better to retain 
documents rather then destroy them.
    This is because if an investigation is started and the 
investigators learn that I started a large scale shredding operation, 
it makes me look guilty.
    Ms. Temple's e-mail to Mr. Odom that was subsequently relayed to 
Mr. Duncan reminding everyone of the so-called ``document preservation 
policy'' is at least highly suspicious and at most criminal.
    Mr. Chairman, Arthur Andersen definitely played a role in the Enron 
collapse, but we all know the true problem resides with Ken Lay, 
Jeffrey Skilling, and Andrew Fastow.
    Arthur Andersen is only a large cog in the wheel that was Enron, 
and the Committee needs to stay focus on this fact.
    I want to thank you again Mr. Chairman for allowing me to 
participate today, and I look forward to hearing the witness testimony.

    Mr. Deutsch. If I could yield back my time, then, and just 
mention, you know, I don't know how much we will get in this 
hearing, but Mr. Green--I know my colleague also from Houston 
area as well has unfortunately--I mean, we just came back from 
a couple-week break where he was telling me some of the stories 
before the hearing started, and literally, I mean, tearing can 
come to your eyes, that he is met the people, he has talked to 
people on a daily basis. Obviously that information of what the 
status of Enron was not provided for them, and clearly the 
insiders knew what was going on.
    Chairman Tauzin. Would the gentleman yield?
    Mr. Deutsch. I am out of time. If he would----
    Chairman Tauzin. Just quickly to announce that we are going 
to have a full committee hearing on Enron to lead off the rest 
of the hearings by the subcommittees, and the gentleman will, 
of course, have a chance then to make full opening statements.
    Mr. Green. Thank you.
    Mr. Greenwood. And if I may say so, the gentleman from 
Texas Mr. Green has expressed his profound concern with regard 
to the well-being of his constituents, and we appreciate his 
participation this morning.
    The Chair now recognizes the gentleman from Florida Mr. 
Bilirakis for an opening statement.
    Mr. Bilirakis. Thank you very much, Mr. Chairman. I don't 
have a prepared opening statement, but I would just like to 
make a couple of points very briefly. One is that both Mr. 
Tauzin and Dingell have emphasized bipartisanship of this 
hearing and of the entire investigation, and of the subsequent 
hearings that are going to take place. I think we should all 
keep that in mind. This particular hearing is limiting itself, 
as I understand it, to the destruction of Enron-related 
documents by personnel working for the company, and I would 
hope that we would limit ourselves to that. As much as we all 
would want to go into the other areas, I hope that we would try 
and hold off on those.
    The second point as has been made by so many others in 
other ways is credibility, or I guess I like to say maybe lack 
of credibility. We depend on you accountants and you auditors. 
We, the American people, depend on you so very much. We depend 
on your truth. We depend on your veracity. We depend on you not 
hiding and on you not misstating and not miscommunicating to us 
the facts as you see them. What is happening here is that we 
are losing that sense of credibility in you. I am not sure that 
any of the American people are paying attention at all, 
although I expect that they practically all are. I am not sure 
that they will, in the future place, complete confidence in 
information that they might receive from the auditors and the 
accountants of any of the companies throughout this country of 
ours. And for that, you should be, I think, very, very much 
ashamed.
    Now, I don't know what happened. I don't know why the 
documents were destroyed. We are supposed to go into these 
hearings with an open mind, and I like to think that we all 
have an open mind. However, I think we all probably have been 
back there sort of saying, hey, if they destroyed these 
documents the way they did when they probably should not have, 
they must have had something to hide. That is certainly there, 
and I hope that you will clear that up.
    Did the process of destruction of documents mean that you 
are hiding the truth, that you did not reflect the truth, that 
you did not really do the job that American people expected you 
to do, even though you were employed by the company in the 
process of reporting their activities? So many people are let 
down, not only the stockholders around the country, but 
certainly the employees who have lost so much in their 
retirement fund. Certainly it is a shame when you see a big 
company go under the way it has, and it is a terrible crime 
that retirement funds have been lost. However, I think more 
than anything else we have lost that sense of credibility that 
we have always had in the auditors and in the accountants, and 
I think that is just really terrible. And, again, you should be 
ashamed of all that.
    Having said all that, Mr. Chairman, I will yield back.
    Mr. Greenwood. The Chair thanks the gentleman from Florida 
and recognizes for his opening statement for 3 minutes the 
gentleman from Michigan Mr. Stupak.
    Mr. Stupak. Mr. Chairman, I thank you for holding this 
important hearing. This is the first of what will likely be 
many hearings this committee will hold on the collapse of Enron 
and the roles that the executives at Enron and Arthur Andersen 
played in that collapse. Today's hearing about shredding 
documents by Arthur Andersen employees is one with extremely 
serious implications, including possible civil and criminal 
penalties. I look forward to learning more about Andersen's 
policies on document retention and destruction.
    In reviewing the materials provided by the committee, it 
appears that there were--was a clear effort on Andersen's part 
to cleanse their files after they were made aware that the SEC 
had begun an inquiry on October 22 and well after Andersen was 
informed by one of their former employees who was working for 
Enron that shady accounting practices were going on at Enron.
    While I do look forward to hearing about what Andersen's 
official policy is on document retention, I also hope that our 
panelists will be able to shed some light on what is being done 
to recover the documents that were purged from computers and 
shredded by staff. Certainly Andersen runs backups of their 
computer files, just as my office does, and would have them 
available to recover many of the deleted files. Hopefully Mr. 
Baskin will be able to provide us with an update as to what is 
being done to recover these documents.
    The actions taken by Andersen and Enron executives in 
recent months give us reason to be concerned about the cavalier 
attitude that is all too prevalent in today's corporate world. 
I can't help but believe that this cavalier attitude was 
encouraged by the passage over a Presidential veto of the 
Securities Litigation Reform Act of 1995.
    In 1995, only a few other members on this committee and I 
opposed the bill, which essentially shredded the rights of 
investors to take action against companies for these deplorable 
business actions. The Security Litigation Reform Act, or the 
securities rip-off act as some of us called it back then, 
provides immunity from the private fraud liability for written 
or oral corporate forward-looking statements even when those 
statements are deliberately false. This so-called reform act 
significantly limits victims' recoveries by curtailing joint 
and several liability, making it more difficult for Enron 
employees to sue corporate officials who cashed in close to a 
billion dollars worth of stock while Enron was collapsing.
    Finally, the Securities Reform Act failed to restore the 
liability of aiders and abetters in private action. Here we 
have Andersen aiding Enron or Enron aiding Andersen, and the 
whole crooked bunch avoids liability. So once again, the 
defrauded shareholders are left holding an empty bag.
    Unfortunately, Mr. Chairman, we are seeing firsthand the 
results of that terrible law. Thousands of Enron employees who 
used to have what they thought would be a secure retirement 
will now be forced to work well into what should be their 
retirement years and have little ability to take action against 
the individuals who shredded their hopes for a secure 
retirement.
    Chairman Tauzin said this morning, and I compliment him, he 
said in a TV interview that our first commitment must be to the 
investors. I agree, and we can help these and millions of other 
shareholders by immediately repealing the 1995 Securities 
Reform Act so we can put teeth back into our security exchange 
laws.
    Mr. Chairman, it is not just the employees who are taking a 
beating on their retirement hopes. There are countless numbers 
of people, ranging from teachers in California, police and fire 
officials in New York City, who have lost hundreds of millions 
of dollars in their pension plans and 401(k)s. That is a 
subject of future hearings, which the chairman said we will be 
having beginning next week, and I look forward to discussing 
this in more detail and more depth at future hearings. And I 
thank you, Mr. Chairman, for the time.
    [The prepared statement of Hon. Bart Stupak follows:]

 Prepared Statement of Hon. Bart Stupak, a Representative in Congress 
                       from the State of Michigan

    Mr. Chairman, I thank you for holding this important hearing this 
morning. This is the first of what will likely be several hearings that 
this committee will hold regarding the collapse of Enron and the roles 
of the executives at Enron and Arthur Andersen in that collapse.
    Today's hearing about the shredding of documents by Arthur Andersen 
employees is one with extremely serious implications including possible 
civil and criminal penalties. I look forward to learning more about 
Anderson's policy on document retention and destruction. In reviewing 
the materials provided by the committee, it appears that there was a 
clear effort on Anderson's part to cleanse their files AFTER they were 
made aware that the SEC had begun an inquiry on October 22nd and well 
after Andersen was informed by one of their former employees who was 
working for Enron that shady accounting practices were going on at 
Enron.
    While I do look forward to hearing about what Andersen's official 
policy is on document retention, I also hope that our panelists will be 
able to shed some light on what is being done to recover the documents 
that were purged from computers and shredded by staff. Certainly 
Andersen runs back-ups of their computer files, just as my office does, 
and would have them available to recover many of the deleted files. 
Hopefully Mr. Baskin will be able to provide us with an update as to 
what is being done to recover these documents.
    The actions taken by Andersen and Enron executives in recent months 
give us reason for concern about the cavalier attitude that is all too 
prevalent in today's corporate world. I can't help but believe this 
cavalier attitude was encouraged by the passage--over a presidential 
veto--of the Securities Litigation Reform Act of 1995. In 1995 only a 
few other members on this committee and I opposed the bill which 
essentially shredded the rights of investors to take action against 
companies for these deplorable business actions. The Securities 
Litigation Reform Act, or Securities Rip Off Act as some of us called 
it, provides immunity from private fraud liability for written or oral 
corporate forward looking statements even when those statements are 
deliberately false. This so-called Reform Act ``significantly limits 
victims recoveries by curtailing joint and several liability making it 
more difficult for Enron shareholders to sue corporate officials who 
cashed in close to 1 billion dollars worth of stock while Enron was 
collapsing. Finally, the Security Reform Act failed to restore the 
liability of aiders and abettors in private action. Here we have 
Andersen aiding Enron or Enron aiding Andersen and the whole crooked 
bunch avoids liability, so once again the defrauded shareholders are 
left holding an empty bag.
    Unfortunately Mr. Chairman, we are seeing first hand the results of 
that terrible law. Thousands of Enron employees who used to have what 
they thought would be a secure retirement will now be forced to work 
well into what should be their retirement years and have little ability 
to take action against the individuals who shredded their hopes of a 
secure retirement. Chairman Tauzin said this morning in a TV interview 
that ``our first commitment is to the investors. I agree and we can 
help these and millions of other shareholders by immediately repealing 
the 1995 Securities Litigation Reform Act--so we can put teeth back 
into out security exchange laws.
    Mr. Chairman, it is not just the Enron employees who have taken a 
beating on their retirement hopes. There are countless numbers of 
people ranging from teachers in California to police and fire officials 
in New York who have lost hundreds of millions of dollars in their 
pension plans and 401K's , but that is a subject for future hearings 
and I look forward to discussing this more in depth at those hearings.

    Mr. Greenwood. The Chair thanks the gentleman from Michigan 
and recognizes for the purposes of an opening statement for 3 
minutes the gentleman from Florida Mr. Stearns.
    Mr. Stearns. Thank you, Mr. Chairman, and let me commend 
you for having this hearing and, of course, also to commend the 
staff on both sides of the aisle for all the work they did, of 
course, during the holidays when lots of the Members were back 
enjoying the Christmas holidays.
    The hearings, of course, today are focusing on destruction 
of documents, an allegation that will carry serious 
implications should deliberate wrongdoing be discovered. I 
think I am not alone. I think all of my colleagues would agree 
that a person will fare better in cooperating with this 
subcommittee and the full committee's investigation as opposed 
to subverting our efforts. We need to have answers for 
investors, and we need to develop transparency on this question 
of the auditing of large corporations.
    Florida State pension fund incurred a loss to the tune of 
$300 million. Individual constituents have called me to render 
their complaints at losing their retirement savings from their 
401(k) accounts. And I promised, as my colleagues on both sides 
have, to do everything possible to get to the bottom of this 
matter and prevent a reoccurrence. So I look forward to the 
testimony of our witnesses.
    It is my understanding that a memo from February 2001 
detailed Andersen's concern with Enron and whether that 
company's dealing would harm Andersen's reputation. I think I 
can say that Andersen now has wounded its own reputation. It is 
self-inflicted. So if they are here today, it is their own 
fault. Mr. David Duncan, the former Andersen partner in charge, 
is alleged to have ordered the expedited destruction of Enron-
related documents. One of our witnesses, a counsel for Arthur 
Andersen, Ms. Temple, prior to the document destruction e-
mailed a, ``reminder,'' of Andersen's document retention 
policy. So is Mr. Duncan being made a scapegoat here this 
morning, for it sees maybe an explicit order was given to 
destroy a document, yet backsides were covered through the, 
``reminder'' e-mail on document retention.
    This is kind of like the code word--the code red 
instruction that Colonel Jessup used in A Few Good Men, that 
movie, as you will remember. When he issued the code red, it 
was a term that did not appear in any manual or standard 
operating procedure, yet carried specific actions once it was 
given.
    So, Mr. Chairman, I think this hearing should give us an 
opportunity to get to the bottom of this destruction of 
documents, and I might say, the chairman of our full committee 
has also talked about transparency in auditing procedures. I 
would like to note that I chair the committee that has 
jurisdiction over the Financial Accounting Standards Board, and 
I would like to know personally if our accounting standards are 
responsive to today's challenge posed by the increasingly 
complex business and financial transactions of companies like 
Enron. Are there other companies doing this same procedure with 
these limited partnerships, sheltering of the debt? So we need 
to look at these standards and to assure our constituents and 
the American public that there is transparency and honesty 
dealing with these accounting procedures.
    So, again, I commend you and the full chairman of the staff 
for the work you are doing.
    Mr. Greenwood. The Chair thanks the gentleman from Florida 
and recognizes for the purposes of an opening statement for 3 
minutes the gentleman from Ohio Mr. Strickland.
    Mr. Strickland. Thank you, Mr. Chairman, and I would like 
to submit a longer opening statement, and I will be short.
    Mr. Greenwood. Without objection, the gentleman's statement 
will be a part of the record.
    Mr. Strickland. It isn't clear exactly when the collapse of 
Enron began, but on October 16, 2001, Enron announced its 
third-quarter results, which included a loss of more than $600 
million, and disclosures of a $1.2 billion reduction in 
shareholder equity. The next day, October 17, the SEC opened an 
informal inquiry into Enron's business practices, and on 
October 22, Enron publicly acknowledged the SEC's inquiry was 
under way. Only 1 day later, the Andersen/Enron audit managers 
met, and the team was instructed to ensure that they are in 
compliance with the firm's, ``documentation retention and 
destruction policies.''
    Subsequently and alarmingly, an estimated thousands of 
Enron-related documents were destroyed. This destruction of 
documents takes place after the SEC began its inquiry. 
Furthermore, the destruction of documents continues not for a 
few hours or for a few days, but I understand it wasn't until 
November 9, 2001, that an e-mail was sent to the Enron audit 
team calling for, ``no more shredding.''
    This behavior by Enron's accounting firm is brazen, 
outrageous, and completely unacceptable. In fact, the document 
shredding may render it impossible for this committee, the 
other House and Senate committees, the SEC and the Department 
of Justice to know exactly who and what led to Enron's 
collapse.
    Andersen was responsible for auditing Enron's books and 
recognizing the company's problems. Not only did the accounting 
firm neglect to do its job, but it may have made it impossible 
for the SEC to do its job because it continued to destroy 
documents relevant to the agency's investigation.
    When Enron declared bankruptcy last month, thousands of 
workers found themselves unemployed, and investors, including 
many of those same unemployed workers, lost billions of dollars 
when Enron's stock fell. As workers and investors suffered the 
consequences of Enron's apparently fraudulent behavior, and the 
company's executives, embarrassed perhaps, but rich, walk away 
with millions of dollars, the employees walk away with little 
or nothing.
    It is imperative that we uncover what happened and that we 
take steps to see that those who are responsible are punished, 
and having worked in a maximum security prison before I came to 
this institution, I am tired of white collar crime being 
treated differently than other kinds of crime in this country, 
and if crimes have been committed, it is my fervent hope that 
those responsible will see the inside of a jail cell. I yield 
back my time.
    Mr. Greenwood. The Chair thanks the gentleman from Ohio and 
recognizes the gentleman from North Carolina Mr. Burr for 3 
minutes for the purposes of an opening statement.
    Mr. Burr. Thank you, Mr. Chairman.
    I don't think anyone at this hearing is happy with the 
reasons for why we are here today, but today in this exercise 
we must faithfully discharge our duties to uncover that which 
has been covered up. We must begin to publicly uncover and 
inquire of the actions taken by Arthur Andersen in its work on 
behalf of the Enron Corporation. Why did Andersen engage in 
what is alleged to be a large-scale destruction of documents 
related to Enron's financial well-being?
    We know from testimony given to our committees as early as 
August that Andersen had already convened a working group to 
review Enron's third-quarter charges, charges in its October 16 
press release that revealed a loss of $618 million and a 
reduction in shareholder equity of approximately $1.2 billion 
due to charges associated with various partnerships. We know 
that Ms. Temple was concerned enough about misstatements in the 
third-quarter press release, that she suggested to Mr. Duncan 
that portions of his memo for company files be deleted so that 
it does not suggest that Andersen concluded the release was 
misleading.
    Why is this important? Because it appears that some at 
Andersen were seeking to avoid a similar outcome to what had 
happened with their client Sunbeam in the middle of the last 
year. As it was reported by The Wall Street Journal in 
November, according to the SEC's May settlement order with 
Sunbeam, Andersen auditors had routinely dismissed so many 
violations of general accepted accounting procedures as 
immaterial, that they eventually piled up to produce 
significant distortions in Sunbeam's financial statements, 
making the barely solvent consumer products maker look 
handsomely profitable. Sunbeam filed for Chapter 11 bankruptcy 
protection this past February 2001.
    This article went on to say that under generally accepted 
accounting procedures, misstatements aren't immaterial simply 
because they fall beneath the numerical threshold. According to 
an SEC accounting bulletin, under certain circumstances, the 
SEC says intentional immaterial misstatements are unlawful. One 
reason is that when immaterial statements are combined with 
other misstatements, they can, according to the SEC bulletin, 
render the financial statement taken as a whole to be 
materially misleading.
    What I hope to come away from this hearing and this phase--
and I emphasize ``this phase''--of our investigation is were 
documents destroyed by Andersen that would have proven that 
an--that they had made intentionally immaterial statements as 
related to Enron? When did Andersen hire outside counsel to 
represent them, and did the document destruction start, 
continue, or accelerate once they received that outside legal 
advice? Were Andersen officials aware of an SEC investigation, 
but did little to stop the destruction of documents?
    Mr. Chairman, the chore before us today will require some 
hard work and heavy lifting. Before I go any further, I want to 
commend the staffs on both sides of the aisle who gave up 
nights, weekends and holidays to make sure that we were ready 
to start this investigation today. It has been said that hard 
work will reveal character of those involved in the task at 
hand. Some will turn up their sleeves, some will turn up their 
nose, and some just won't turn up at all. I look forward to 
working with those who choose to turn up their sleeves in this 
endeavor to uncover that which has been covered up, and I yield 
back.
    Mr. Greenwood. The Chair thanks the gentleman from North 
Carolina and recognizes for 3 minutes the gentlelady from 
Colorado for the purpose of making an opening statement.
    Ms. DeGette. Thank you, Mr. Chairman. Before I make my 
statement, I would like to ask unanimous consent that all the 
full committee members who are here but not being allowed to 
make opening statements be allowed to submit their statements 
for the record.
    Mr. Greenwood. Without objection, the opening statements 
from the full committees members present who are not members of 
the subcommittee will be incorporated into the record.
    Ms. DeGette. Thank you, Mr. Chairman.
    Mr. Chairman, by now we are all painfully familiar with the 
events that led to the collapse of Enron. When Enron reported a 
significant financial loss more than a year ago, we soon 
learned that it had inflated its earnings by straying from 
generally accepted accounting principles. Subsequently, the SEC 
opened investigations into Enron and later Arthur Andersen. 
This whole debacle has shown Congress and the SEC that we will 
need to, among other things, strengthen the laws which protect 
investors and build stronger protections to prevent the 
inevitable conflict between companies that audit and provide 
other services to their clients.
    Today, though, the issue is focused specifically on the 
destruction of Enron-related documents by Arthur Andersen 
employees. This panel will need to help us understand exactly 
what Andersen's document destruction protocol is, which 
documents should be destroyed under it and the conditions that 
govern its use.
    Specific actions were taken--that were taken by Andersen 
employees are also in need of scrutiny. Through press accounts 
and through staff, we have learned that an internal memo was 
sent to David Duncan, who is here today but apparently not 
going to testify, the head of Andersen's Houston branch, from 
Nancy Temple, a lawyer in the company's Chicago headquarters. 
The memo reportedly detailed Andersen's standard document 
destruction and retention protocol. Five days later Enron 
received a letter of inquiry from the SEC, initiated after 
Enron reported significant changes to its financial standing. 
According to press accounts, despite the SEC inquiry into one 
of its clients, Andersen had begun to and continued to shred 
documents related to its business dealings with Enron and did 
not make any change to that policy, even after it was--it 
received a letter of inquiry from the SEC.
    I frankly don't want to leave this room today until I learn 
two things. First, what exactly was the document preservation 
protocol at Andersen in this instance, and what has been done 
in past similar instances as some of my colleagues have alluded 
to? Second, the exact time line of who knew what when and the 
implications of this employee knowledge on the destruction of 
documents.
    The committee's investigation has thus far discovered that 
implementation of Andersen's document destruction protocol may 
have been ambiguous. It was generally understood by Andersen 
employees that the policy was not applied uniformly, and no 
particular manager on any level oversaw compliance with the 
policy. We need to find out the implication of that matter.
    We also need to find out whether senior members of Andersen 
were aware of Enron's potential accounting problems possibly in 
August of 2001.
    I will be asking the panelists a number of questions around 
these issues. Mr. Chairman, I congratulate you in calling this 
hearing today and look forward to learning the answers to these 
questions.
    Mr. Greenwood. The Chair thanks the gentlelady from 
Colorado and recognizes for 3 minutes for the purpose of an 
opening statement the gentleman from Kentucky Mr. Whitfield.
    Mr. Whitfield. Mr. Chairman, thank you very much.
    This is really a sad day for our country, and I know that 
there isn't anyone on this committee that is particularly 
excited about this endeavor. This is the first of many hearings 
that will be held on this subject, and our goal, of course, is 
to find out the truth. We know for a fact that 4,000 some-odd 
people have lost jobs. We know for a fact that stockholders 
from around the country have lost most of their equity in this 
company. We know for a fact that employees--loyal employees of 
the company have had their pension plans eliminated, the value 
of their 401(k)s eliminated. And we know for a fact that 
Sherron Watkins in her letter to Mr. Lay back in August pointed 
out--this is quite sad, I think--that--it said, employees 
question our accounting proprietary consistently and 
constantly.
    I have even heard one manager-level employee from the 
principal investments group say, I know it would be devastating 
to all of us, but I wish we would get caught. We are such a 
crooked company. And then one of the real advocates for Enron, 
Mr. David Fleischer, an analyst at Goldman Sachs, had told Mr. 
Lay at a financial analyst meeting, there is an appearance that 
you are hiding something. And he went on to say, they have 
engaged in a number of transactions that one wonders about and 
that are hard to understand. They have not been as forthcoming 
in explaining them, but, he said, I am still recommending the 
stock, because I don't think accountants and auditors would 
have allowed total shenanigans. And in the absence of total 
shenanigans going on at this company, there is tremendous value 
here.
    So we want to get to the facts. We want to discover the 
truth. And as we go forward, Congress is going to have to come 
up and come forward with some solutions to prevent this type of 
activity in the future, look at conflicts between one entity 
serving as a consultant and as an auditor, and try to determine 
how the Director of the Division of Investment at the SEC in 
1997 provided an exemption from the Foreign Investment Act of 
1940 for Enron alone.
    Do we need pension reform? Why did the board of directors 
of Enron waive their ethical standards for corporate executives 
to enter into partnerships with Enron for the purpose--or at 
least what happened was hiding debt? All of these questions 
must be answered, and as I said, it is a sad day, and many of 
us do have constituents impacted by this. And when you think of 
the employees of this company and their loyalty to this company 
being totally wiped out while executives walked off with 
millions and millions and millions of dollars, it really is a 
sad day, and I want to thank the chairman for having this 
hearing.
    Mr. Greenwood. The Chair thanks the gentleman from Kentucky 
and recognizes the gentleman from Louisiana, Mr. John.
    Mr. John. Mr. Chairman, thank you very much for holding 
this hearing. This is a very important topic, and what I 
envision is going to be a series of very in-depth, very lengthy 
and very serious hearings over the next few months, several 
months, engaging the full committee also, on what went wrong 
with the energy giant Enron. The hearing today focuses on what 
I believe is a first appropriate step, and that, of course, is 
document shredding. I believe it is really important for us to 
start here to understand and uncover what exactly went wrong.
    I think the work of this committee is very clear. First, it 
is to get the testimony from individuals so that we can 
understand and uncover the facts; second, determine if there 
were criminal activities that were engaged in; and third, to 
seek out the appropriate--appropriate, if necessary, 
legislative solutions affecting accounting, managerial and 
corporate relationships so this tragedy will never happen again 
in America.
    I will have a more in-depth and comprehensive opening 
statement at the full committee hearing next week, which will 
be more global in its reach, and I look forward to the 
testimony today from the witnesses. I thank the chairman for 
his----
    Chairman Tauzin. Would the gentleman yield?
    Mr. John. Sure. Yes, I will yield to the chairman.
    Chairman Tauzin. The Chair feels compelled to clarify that 
with the new announcements, disclosures of potential record 
destruction at Enron Corporation itself, that the full 
committee hearing is scheduled for February 6. If you will all 
put that on your calendar. The investigators will use the time 
in between to examine thoroughly those new allegations of Enron 
destruction. I thank the gentleman for yielding.
    Mr. John. Thank you, and I yield back to the chairman.
    Mr. Greenwood. The Chair thanks the gentleman and 
recognizes the gentleman from New Hampshire, Mr. Bass, for an 
opening statement.
    Mr. Bass. Thank you very much, Mr. Chairman. And has been 
stated before, the purpose of the hearing is to deal with the 
very specific issue of shredding of documents. Hopefully the--
this hearing will lead to broader issues that will be addressed 
by Mr. Stearn's subcommittee, perhaps the full committee, 
dealing with issues of accounting practices and changes in the 
regulatory structure that govern the proper disclosure and 
honest, trustworthy disclosure of financial information in the 
corporate world.
    As my friend from Kentucky said, this is going to be a--to 
a great extent--a very sad process that we go through here for 
the 4,000 or so people whose lives have been shredded by the 
actions of a few who may have acted in a certainly unethical, 
if not illegal, manner in covering up what may be one of the 
biggest corporate scandals in recent American history.
    I hope as a result of this hearing, and hearings that will 
follow, that we can to some measure restore a feeling of 
confidence in the integrity of not only accounting practices, 
but in business reporting practices which will have a salutary 
impact on the capital markets in this country, because this is 
not a good time in this country to have this kind of an issue 
arise.
    We are economically fragile right now. The last thing we 
need to have is to have investors lose confidence in the--in 
the nature and structure of corporations and business and to 
have allegations, such as the ones that will be discussed and 
investigated over the next few weeks, prove to be true.
    So I want to thank my colleagues for helping bring this 
matter out and bring a resolution, because if we don't, the 
implications are going to be not only significant to the 
business world but to the economy and this Nation and the 
world. I yield back.
    Mr. Greenwood. The Chair thanks the gentleman from New 
Hampshire and recognizes the gentleman from Illinois, Mr. Rush, 
for an opening statement.
    Mr. Rush. Thank you, Mr. Chairman, for holding today's 
hearing on the destruction of Enron-related documents. Today, 
many thousands of Americans have awaked not knowing how they 
will survive today or tomorrow.
    At the same time, several high-level executives are waking 
up with their economic futures in top-notch shape. For them, 
the collapse of Enron may be little more than a financial speed 
bump.
    Today's hearing will be an important part in answering the 
questions asked by many Americans. That question is simply: Why 
was corporate misconduct and malfeasance allowed to happen? Why 
was Enron's arrogance and avarice allowed to trample the future 
of Enron's employees?
    Enron, which was once the seventh largest company in 
America, has wreaked havoc on the lives of thousands of former 
employees and stockholders. Furthermore, given the major role 
that Enron played in the energy industry, the ripple effects 
will be felt throughout our economy for some time to come. 
Other Americans will pay for Enron's corporate greed.
    Simply put, this is indeed a financial catastrophe. One 
economist stated it perfectly when he said the following, and I 
quote: You can look at the system of concentric circles from 
management to directors and the audit committee to regulators 
and analysts and so forth and so forth. This was like a nuclear 
meltdown where the core was melted through all layers.
    Today, as we begin to look at the first of many layers of 
that meltdown, I am hopeful that we will be able to conduct a 
straightforward discussion. That discussion should allow us to 
move on that core issue that asks: What deliberate, negligent, 
or reckless actions taken by Enron itself led to the financial 
and personal ruin of thousands of unsuspecting shareholders?
    That said, I will remind the witnesses of the importance of 
today's hearing, which is not about excuses, nor is it about 
fingerpointing done in the hopes of getting off the hook. 
Instead, this hearing is about those thousands of workers who 
were left to perish in this financial meltdown while those at 
the controls ran for safe cover. And ultimately this hearing is 
an important step in making sure that the American public is 
shielded from this sort of travesty in the future.
    And, Mr. Chairman, last I want to say that I hope that my 
gut suspicions are not accurate this morning, and I hope that 
although the hearing is aimed at the actions, possible criminal 
actions of Arthur Andersen, I hope that this hearing is not 
about letting Enron off the hook and distracting and diverting 
the attention of the actions of the Enron executives and using 
others an scapegoats for their actions.
    Thank you, and I yield back the balance of my time.
    [The prepared statement of Hon. Bobby L. Rush follows:]

Prepared Statement of Hon. Bobby L. Rush, a Representative in Congress 
                       from the State of Illinois

    Today, thousands of Enron employees awoke not knowing how they will 
survive today or tomorrow. At the same time, several high level 
executives awoke with their economic futures in good condition. For 
them, the collapse of Enron may be little more than a financial speed 
bump.
    Today's hearing will be an important part in beginning to answer 
the questions asked by millions of Americans. Those questions are 
simply: Why was this corporate misconduct and negligence allowed to 
occur? Why were Enron's top-level managers allowed to arrogantly and 
greedily trample on the future of their employees?
    Enron, once the seventh largest company in America, has wreaked 
havoc on the lives of thousands of their employees and stockholders. 
Furthermore, given the major role that Enron played in the energy 
industry, the ripple effects of their collapse are will be felt 
throughout our economy for some time to come. Americans will pay for 
Enron's corporate greed. This is a financial catastrophe.
    One economist stated it perfectly when he said the following: ``You 
can look at the Enron collapse as a system of concentric circles from 
management to directors, and the audit committee to regulators. This 
was like a nuclear meltdown where the core was melted through all 
layers.''
    As we begin to look at the first of many layers of that meltdown, I 
am hopeful that we will be able to conduct a straight-forward 
discussion. I would remind the witnesses of the importance of today's 
hearing. It is not about excuses and finger pointing done in the hopes 
of getting off the hook. It is about those thousands of workers who 
were left to perish in this financial meltdown, while those at the 
controls ran for safe cover. The hearing is a critical first step in 
making sure that the American public is forever shielded from this sort 
of travesty.

    Mr. Greenwood. I thank the gentleman. Mr. Rush, if you want 
to see us investigate the Enron Corporation, I suggest you 
fasten your seatbelt.
    [Additional statements submitted for the record follow:]
 Prepared Statement of Hon. Richard Burr, a Representative in Congress 
                    from the State of North Carolina
    Mr. Chairman, I don't think anyone at this hearing is happy with 
the reasons for which we must be here today. But today, in this 
exercise--we must faithfully discharge our duties to uncover that which 
has been covered up.
    We must begin to publicly uncover and inquire of the actions taken 
by Arthur Andersen in its work on behalf of the Enron Corporation.
    Why did Andersen engage in what is alleged to be a large scale 
destruction of documents related to Enron's financial well-being? We 
know from testimony given to our Committee's as early as August, that 
Andersen had already convened a working group to review Enron's Third 
Quarter charges, charges that in its Oct 16 press release revealed a 
loss of $618 MILLION and a reduction in shareholder equity of 
approximately $1.2 BILLION due to charges associated with various 
partnerships. We know that Ms. Temple was concerned enough about 
misstatements in the Third Quarter press release that she suggested to 
Mr. Duncan that portions of his memo for company files be deleted so 
that it does not suggest that ``[Andersen has] concluded the release is 
misleading.'' Why is this important?
    Because it appears that some at Andersen were seeking to avoid a 
similar outcome to what happened with their client Sunbeam in the 
middle of last year.
    As it was reported by the Wall Street Journal in November, 
``according to the SEC's May settlement order with Sunbeam, Andersen 
auditors had routinely dismissed so many violations of Generally 
Accepted Accounting Procedures (GAAP) as immaterial that they 
eventually piled up to produce significant distortions in Sunbeam's 
financial statements, making the barely solvent consumer-products maker 
look handsomely profitable. Sunbeam filed for Chapter 11 bankruptcy-
court protection this past February (2001).''
    The article went on to say, ``Under GAAP, misstatements aren't 
immaterial simply because they fall beneath a numerical threshold, 
according to an SEC accounting bulletin. Under certain circumstances, 
the SEC says intentional immaterial misstatements are unlawful. One 
reason is that when immaterial misstatements are combined with other 
misstatements, they can (according to the SEC bulletin): `render the 
financial statements taken as a whole to be materially misleading.' ''
    What I hope to come away with from this hearing and this phase of 
our investigation is:

 Were documents destroyed by Andersen that would have proved 
        they had intentionally made immaterial statements as they 
        related to Enron?
 When did Andersen hire outside counsel to represent them as it 
        pertained to their client Enron?
 Were Andersen officials aware of an SEC investigation yet did 
        nothing to stop the destruction of documents?
    Mr. Chairman, the chore before will require some hard work and 
heavy lifting. Before I go any further, I want to commend the staffs on 
both sides of the aisle who sacrificed nights, weekends and holidays to 
get this investigation to where we are today. It has been said that 
hard work will reveal the character of those involved in the task at 
hand. Some will turn up their sleeves, some will turn up their noses, 
and some just won't turn up at all. I look forward to working with 
those who chose to turn up their sleeves in this endeavor to uncover 
that which has been covered up.
                                 ______
                                 
Prepared Statement of Hon. Robert Ehrlich, a Representative in Congress 
                       from the State of Maryland

    Thank you, Mr. Chairman. Mr. Chairman, the failure of any business 
is deeply disappointing as investors are stripped of wealth and 
worker's incomes, security, and future dreams are altered. Employees 
and their families bear the brunt of this failure with many 
experiencing a profound sense of loss, anger, and shame. As the failure 
ripples through related enterprises, rocking businesses and 
communities--disillusionment and loss is left in its wake. 
Unfortunately, the tempest of a failed enterprise is in direct 
proportion to its size, and I applaud your conducting this inquiry of 
Enron, once our nation's 7th largest company.
    On December 2, 2001, energy-giant Enron shocked the energy and 
financial communities by filing for Chapter 11 bankruptcy. Enron is the 
largest corporation in American history to file for bankruptcy. In 
addition to investor losses, the sudden and dramatic fall in Enron's 
stock price has stripped the retirement accounts of many current and 
retired Enron employees, whose savings were largely based on Enron 
stock.
    Mr. Chairman, my colleagues and I support the committee's efforts 
to discover whether or not Enron engaged in illegal business practices. 
We want to understand why executives received large bonuses and 
compensation during Enron's financial decline while other employees 
were prevented from selling their stock and lost their entire life 
savings. We want to understand how such a large corporation was able to 
hide its debt and collapse without any warning from responsible 
regulatory agencies and auditors. There are many questions to be 
answered: Did Enron's use of a large number of partnerships contribute 
to its collapse? Was there a failure on the performance of federal 
regulators? Did federal regulators have authority to adequately oversee 
the complex commodity trading and financial transactions--the 
foundation of Enron's rapid growth? Through your guidance, these and 
many other questions will be answered.
    Further, I am troubled by the performance of one of our country's 
most preeminent accounting firms and auditors. Strong, diligent, and 
effective accounting and auditing practices are the foundation of 
capitalism and fundamental to maintaining investor and lender 
confidence in our capital markets. The Enron collapse has brought a 
crisis of confidence in the accounting profession and changes are 
required to regain the public's trust. Deceptive accounting and 
auditing practices must not go unchecked.
    Mr. Chairman, I applaud your efforts to review accounting 
standards, practices, and services and their effects in the Enron 
collapse. If there are flaws in the regulatory system, then the laws 
must be changed to guarantee that a debacle of this magnitude will 
never happen again. I agree with President Bush's State of the Union 
statement that through stricter accounting standards and tougher 
disclosure requirements, corporate America must be made more 
accountable to employees and shareholders and held to the highest 
standards of conduct. This must be an era of corporate responsibility.
    The American people know that deliberate destruction of evidence by 
an employee in an ongoing investigation brings its own State and 
Federal criminal and civil penalties as does failure to comply with SEC 
regulations and directives. Americans know that our court system will 
resolve the many lawsuits seeking justice and compensation. Illegal and 
duplicitous actions should not and cannot be tolerated. Americans know 
that some may attempt to use this failure and business scandal that has 
hurt so many as a tool for petty politics and opinion manipulation. We 
owe those who have worked hard, played by the rules, and have lost so 
much a strong, bipartisan investigation, or risk victimizing them a 
second time.
    Mr. Chairman, your efforts to promote dependable, affordable, and 
environmentally-sound production and distribution of energy are well 
known. Opponents may try to confuse deregulation with illegal and 
duplicitous actions. I continue to believe that the competitive market 
place, protected from potential abuse of power through proper oversight 
and legal protections, is the foundation for a strong economy, the 
basis for national security, and provides the best products and 
services to our citizens. I agree with President Bush that it is 
critical, particular in the energy market, to provide Americans the 
right of choice with regard to products and services.
    Finally, this committee's investigation into Enron's business 
practices will prevent future business collapses of this nature, 
determine the effectiveness of Federal oversight and regulatory 
agencies, and make clear whether changes to Federal law are necessary 
to protect employees and shareholders. We must and will get to the 
bottom of Enron's failure and work to ensure it never happens again.
    Thank you Mr. Chairman.
                                 ______
                                 
    Prepared Statement of Hon. Paul E. Gillmor, a Representative in 
                    Congress from the State of Ohio

    Thank you Mr. Chairman, for giving us the opportunity to explore 
the recent events with regard to the destruction of Enron-related 
documents by Andersen personnel. I am also glad to see the witnesses 
from Andersen and look forward to hearing their testimony.
    Over the past few years, like many of the members here, I have 
distributed a questionnaire to my constituents in an effort seek 
further input regarding the issues of day. Of note, one of my questions 
inquires whether members of a household invested in stocks or mutual 
funds. Here lies my motivation and concern. Of those that responded to 
this year's survey, 83% answered ``yes.'' With the number of private 
shareholders on the rise, it is important that as we listen to 
Andersen's document retention and destruction policies carefully, 
keeping in mind the actions of those in corporate management. More 
importantly, their actions should never come at the expense of the 
shareholder. I look forward to further congressional oversight 
regarding this issue.
                                 ______
                                 
   Prepared Statement of Hon. Edward J. Markey, a Representative in 
                Congress from the State of Massachusetts

    Thank you, Mr. Chairman, for extending to me the courtesy of 
participating in today's hearing.
    I think it is outrageous that the same executives who may be 
responsible for the destruction of workers' pensions--and the 
destruction of documents that might prove their guilt--are currently 
protected by Congress when defrauded worker's actually try to recover 
their life savings. But, sadly, it is true. Why? Because in 1995, 
Arthur Anderson and the other big accounting firms succeeded in 
lobbying Congress to strictly limit their future liability for 
securities fraud. That bill passed over the President's veto as part of 
the Republican Contract with America. And today, we are seeing the grim 
results--Arthur Anderson can no longer be held jointly and severally 
liable when a court has found them guilty of securities fraud. I 
believe that this ill-advised law has directly contributed to a rising 
tide of accounting failures, culminating in the Enron-Arthur Anderson 
fiasco. The types of internal checks and balances that a healthy 
concern about litigation risk used to create within each accounting 
firm has been undermined. The many honest and decent people who want to 
do the right thing get overruled, and the increasing revenues coming 
from consulting and non-audit businesses put growing pressure to sign 
off on the ``cooked books'' of major clients.
    Yesterday, I introduced legislation aimed helping to address this 
problem. This bill would, among other things, require auditors to 
retain copies of all documents generated during the course of an audit 
for a period of four years and establish criminal penalties of up to 
ten years imprisonment for auditors that knowingly and willfully 
destroy such documents. The bill also would reform the liability 
standards applicable to accountants in securities fraud cases and 
provide an exemption from the ``Catch 22'' discovery stay that allows 
accounting firms to escape accountability for their actions. I look 
forward to working with Members on this and other reforms. Clearly, we 
have a system that is very broken, and we need to work together to fix 
it.
    Today's hearing is focused on the disturbing reports that employees 
of Arthur Anderson have destroyed documents in connection with the 
Enron debacle. I think it's appalling that Anderson CEO Joseph 
Berardino has declined the Subcommittee's invitation to testify on this 
matter, when he was somehow able to make an appearance on Meet the 
Press last Sunday. I have also read that Mr. Berardino has agreed to 
appear before the House Financial Services Committee on February 4th. 
If Mr. Berardino can appear to answer questions on national television 
and before other Committees, it seems to me that he should be able to 
appear before this Subcommittee so that we can get to the bottom of why 
his firm destroyed documents being sought by the SEC, by the Justice 
Department, and by defrauded workers and investors.
    Now, I have many questions about the underlying transactions and 
investments whose accounting treatment helped to bring Enron to 
bankruptcy, but I understand that this is not the subject of today's 
hearing. I would merely hope, Mr. Chairman, that we will have a chance 
to thoroughly examine Enron's investments in broadband, its energy 
trading operations, and its derivatives and other structured financings 
in the detail needed to understand just what happened here and what 
lessons we can learn from this massive fraud and misbehavior. That will 
require more than a single hearing of all of the principals to do 
properly.
    Thanks again, Mr. Chairman, for allowing me to participate in 
today's hearing. I look forward to the testimony.

    Mr. Greenwood. The Chair will now call the first panel. Mr. 
Duncan, will you please come forward.
    Please be seated right there. Thank you, sir.
    Good morning, Mr. Duncan.
    Mr. Duncan. Good morning.
    Mr. Greenwood. Mr. Duncan is here with us today under 
subpoena. To date, Mr. Duncan has cooperated with this 
committee in our search for the facts by submitting to an 
interview last week with our committee investigator that lasted 
more than 4 hours. Yet we received a letter from his counsel 
yesterday stating that Mr. Duncan authorized his counsel to 
advise the committee that he will, quote, rely on his 
constitutional right not to testify, close quote.
    I believe that this privilege should be personally 
exercised before the Members, and that is why we have requested 
Mr. Duncan's appearance here today, and request that he 
reconsider.
    Mr. Duncan, you are aware that the committee is holding an 
investigative hearing, and, in doing so, we have the practice 
of taking testimony under oath. Do you have objection to 
testifying under oath?
    Mr. Duncan. No, sir.
    Mr. Greenwood. Thank you. The Chair also advises you that 
under the rules of the House and the rules of the committee, 
you are entitled to be advised by counsel. Do you desire to be 
advised by counsel during your testimony today?
    Mr. Duncan. Yes, sir.
    Mr. Greenwood. Okay. In that case, would you please rise 
and raise your right hand and I will swear you in.
    [Witness sworn.]
    Mr. Greenwood. Thank you, Mr. Duncan. You are now under 
oath and you may give a 5-minute summary of your written 
testimony if you choose to.

TESTIMONY OF DAVID DUNCAN, FORMER ANDERSEN PARTNER-IN-CHARGE OF 
                        ENRON ENGAGEMENT

    Mr. Duncan. I have no summary, sir.
    Mr. Greenwood. Okay.
    The Chair will recognize himself for questioning. Mr. 
Duncan, Enron robbed the bank. Arthur Andersen provided the 
getaway car, and they say that you were at the wheel.
    I have a specific question for you, Mr. Duncan. You were 
fired by Anderson last week for orchestrating an expedited 
effort among the Andersen-Enron engagement team to destroy 
thousands of paper documents and electronic files relating to 
the Enron matter after learning of an inquiry by the Securities 
and Exchange Commission into Enron's complex financial 
transactions.
    Did you give an order to destroy documents in an attempt to 
subvert governmental investigations into Enron's financial 
collapse, and, if so, did you do so at the direction or 
suggestion of anyone at Anderson or at Enron?
    Mr. Duncan. Mr. Chairman, I would like to answer the 
committee's questions, but on the advice of my counsel I 
respectfully decline to answer the question based on the 
protection afforded me under the Constitution of the United 
States.
    Mr. Greenwood. Well, let me be clear, Mr. Duncan. Are you 
refusing to answer the question on the basis of the protections 
afforded to you under the fifth amendment to the United States 
Constitution?
    Mr. Duncan. Again, on the advice of my counsel, I 
respectfully decline to answer the question based on the 
protection afforded me under the United States Constitution.
    Mr. Greenwood. Will you invoke your fifth amendment rights 
in response to all of our questions here today?
    Mr. Duncan. Respectfully, that will be my response to all 
of your questions.
    Mr. Greenwood. I am disappointed to hear that, but it is 
therefore the Chair's intention to dismiss the witness.
    Mr. Duncan, we thank you for your attendance today and your 
respect for this committee's process. You are dismissed and 
perhaps we will see you on another occasion.
    Mr. Duncan. Yes, sir.
    Mr. Greenwood. I continue on my time.
    Mr. Dingell. Mr. Chairman, may I raise a point of inquiry 
at this time?
    Mr. Greenwood. The gentleman is recognized.
    Mr. Dingell. I assume the witness is being excused but may 
be recalled at a later time; is that correct?
    Mr. Greenwood. That is correct.
    Mr. Dingell. And that the witness remains subject to the 
process of the committee, and that if the committee's need is 
such, that we will be recalling him; is that correct?
    Mr. Greenwood. That is correct.
    Mr. Dingell. Very well. I thank you, Mr. Chairman.
    Mr. Greenwood. Does the ranking member of the subcommittee 
wish to be recognized?
    Mr. Deutsch. Mr. Chair, I think also, just in terms of 
clarification, that we have the ability to grant immunity, but 
at this time we have chosen not to, based upon our working with 
the Justice Department as well as the SEC.
    Mr. Greenwood. Mr. Duncan's attorney has repeatedly made it 
clear that Mr. Duncan would have testified this morning had the 
committee been willing to grant immunity to him. We have chosen 
not to do that. I think that would be improper, certainly at 
this time, in view of the Justice Department's investigation.
    Mr. Deutsch. I want to make it clear that that is a 
bipartisan agreement in that respect that the investigation is 
continuing.
    Chairman Tauzin. Would the gentleman yield? I also wanted 
to say clearly on the record that our joint bipartisan team of 
investigators is working on a daily basis in consultation with 
Justice Department officials. The decisions we make regarding 
granting any right of immunity to testify will be made in terms 
of that consultative proceeding with the Justice Department.
    I thank the chairman.
    Mr. Greenwood. The Chair thanks the gentleman.
    Continuing on my time, I think it is very important to lay 
out for the subcommittee, our panel, and our audience our 
apparent understanding of Mr. Duncan's recollection of relevant 
events based on the committee counsel's interview of Mr. Duncan 
last week.
    It is my understanding that Mr. Duncan said that during the 
September and October time period, he participated in frequent 
meetings and teleconferences with a group of senior-level 
Andersen partners in Houston and Chicago to discuss matters 
relating to the Enron account. That group included Ms. Nancy 
Temple from the legal group and Mr. Michael Odom, the audit and 
practice director, both of whom are testifying today.
    The consultation group which was created in late August or 
early September was fluid in membership and was formed in 
response to growing concerns over the accounting for Enron 
special purpose entities.
    Specifically, Mr. Duncan said that the group was formed at 
the suggestion of Mr. Odom and himself in response to, one, 
Sherron Watkins' allegations of accounting improprieties on the 
Enron Raptor and LJM transactions; two, the $1 billion 
accounting error discovered in August by Enron and Andersen 
with respect to the accounting for the Raptor entities; and, 
three, the rapidly declining stock price of the Enron merchant 
assets transferred to the Raptor partnerships which made it 
look like there would be a significant write-down by Enron.
    During these conference calls, prior to October 12, 2001, 
Mr. Duncan recalls receiving advice from Ms. Temple with 
respect to the proper documentation of Andersen's evolving 
position with respect to the correct accounting for the Raptor 
transactions.
    Also prior to receiving Ms. Temple's October 12 e-mail 
regarding compliance with Andersen's documentation retention 
policy, Mr. Duncan recalls Ms. Temple on one or two of these 
three group conference calls asking him, quote, ``How are you 
on compliance with the document retention policy on Enron?'' he 
said that his response to her was, ``At best, irregular.''
    Mr. Duncan then received Ms. Temple's October 12 e-mail 
forwarded from Mr. Odom with the note ``more help.'' He did not 
know what Mr. Odom meant by that phrase, but he viewed Ms. 
Temple's e-mail as a follow-up to the question she had posed to 
him orally about compliance with the retention policy, and as 
advice from his attorney to ensure that the entire Enron audit 
engagement team was in compliance with that policy.
    He added that he had never before during his lengthy tenure 
at Andersen been asked about compliance with the retention 
policy, nor had he ever received such an e-mail about ensuring 
compliance with that policy from anyone in Andersen's legal 
group.
    Mr. Duncan does not recall the precise date, but sometime 
after October 12, 2001, Mr. Duncan met with his top Enron audit 
partners, Mr. Tom Bauer, Ms. Deborah Cash, and Mr. Roger 
Willard, to discuss the advice that he had received from Ms. 
Temple. According to Mr. Duncan, the meeting participants 
concluded that they should call a meeting of all of the Enron 
audit managers to discuss timely compliance with the retention 
policy.
    Mr. Duncan does not recall when this meeting occurred, but 
does not dispute that his secretary sent out an e-mail on 
October 23, 2001, calling an urgent meeting of the Enron 
managers for later that same day.
    Just days earlier, on either Friday, October 19, or 
Saturday, October 20, Mr. Duncan had first learned of the SEC 
informal inquiry of Enron. He recalled that he had discussions 
with the Andersen Consultation Group about the SEC development 
over the weekend, including Ms. Temple. He also recalled that 
on October 22, he and other Andersen engagement team members 
met with Enron chief accounting officer, Rick Causey, to 
discuss the SEC inquiry.
    Duncan said that Causey requested Andersen's assistance in 
creating documents to explain the related party transactions to 
the SEC. Mr. Duncan said that at the meeting he called with all 
of the Andersen audit managers on the Enron account, whenever 
it may have occurred, he advised them of the importance of 
compliance with the document retention policy, and handed out 
copies of the policy to the participants.
    Mr. Duncan said that he observed individuals on the 
engagement team actively complying with the firm's document 
policies by shredding documents, and that the activity 
continued up until November 9 when he received a voice-mail 
from Ms. Temple ordering the preservation of all Enron-related 
documents.
    Mr. Duncan also said that he destroyed some of his own 
Enron-related documents in an effort to comply with Andersen's 
document retention and destruction policies.
    Again, that is my understanding of Mr. Duncan's interview 
with committee staff. Mr. Deutsch, would you agree that I have 
characterized our current understanding of Mr. Duncan's 
recollection of relevant events accurately?
    Mr. Deutsch. I would.
    Mr. Greenwood. Thank you. With that, I would call the 
second panel of witnesses to the table.
    Mr. Dingell. Mr. Chairman, while the witnesses are coming 
forward, I would like to request to proceed out of order for 
about 1 minute.
    Mr. Greenwood. Without objection, the gentleman, Mr. 
Dingell, will be recognized to speak out of order for 1 minute.
    Mr. Dingell. I assure you with thanks, Mr. Chairman, you 
have nothing to fear from this request.
    I have the pleasure to introduce an old friend to this 
committee who is known and loved by us all, Mr. Jack Valenti 
who is in the room.
    And I have also the pleasure to introduce a new friend of 
the committee, somebody that you have been watching, I think 
with great enjoyment, in one of the most popular of the shows, 
The Sopranos. That is Ms. Lorraine Bracco, who is here present 
with us this morning as a part of an effort we are making to 
bring forth information with regard to the inadequate treatment 
of women managers in the marketplace and discrimination against 
them.
    So we thank her for that, and I am pleased to welcome her. 
And I have, Mr. Chairman, stayed under my 1 minute.
    Chairman Tauzin. Will the gentleman yield quickly? Just to 
point out, we may need your character's services before this 
hearing is over.
    Ms. Bracco. I am available.
    Mr. Greenwood. Welcome. The Chair calls the second panel, 
Mr. Dorsey L. Baskin, Jr., managing director, Professional 
Standards Group, Andersen; Mr. Andrews, the global managing 
partner; Ms. Nancy Temple, attorney, Andersen; and Mr. Michael 
C. Odom, audit partner at Andersen.
    Good morning. The Chair welcomes our next panel of 
witnesses. You are aware that the committee is holding an 
investigative hearing and that when doing so, we have the 
practice of taking testimony under oath.
    Do you have any objections to testifying under oath? Seeing 
no such objection, the Chair then also advises you that under 
the rules of the House and the rules of the committee, you are 
entitled to be advised by counsel.
    Do any of you desire to be advised by counsel during your 
testimony today? Mr. Baskin you--state your counsel's name for 
the record, Mr. Baskin.
    Mr. Baskin. Mark Gitenstein.
    Mr. Greenwood. Mr. Andrews?
    Mr. Andrews. Mark Gitenstein and Stan Brand.
    Mr. Greenwood. Ms. Temple?
    Ms. Temple. Yes. Mark Hansen, Reid Figel, and Silvija 
Strikis.
    Mr. Greenwood. You know the name of your attorney. Very 
good. Mr. Odom.
    Mr. Odom. Peter Flemming.
    Mr. Greenwood. Okay. In that case, would you please rise 
and raise your right hands so I can swear you in?
    [Witnesses sworn.]
    Mr. Greenwood. Thank you. The Chair advises you that you 
are now under oath, and would recognize Mr. Andrews for 5 
minutes to make an opening statement, Mr. Andrews?
    Mr. Andrews. Actually, Mr. Baskin is making the opening 
statement.
    Mr. Greenwood. Mr. Baskin, then you are recognized for 5 
minutes for your opening statement.

  TESTIMONY OF C.E. ANDREWS, SENIOR EXECUTIVE, ANDERSEN LLP; 
MICHAEL C. ODOM, AUDIT PARTNER, ANDERSEN LLP; DORSEY L. BASKIN, 
JR., MANAGING DIRECTOR, PROFESSIONAL STANDARDS GROUP, ANDERSEN 
         LLP; AND NANCY TEMPLE, ATTORNEY, ANDERSEN LLP

    Mr. Baskin. Thank you. Chairman Tauzin, Congressman 
Dingell, Chairman Greenwood, Congressman Deutsch, members of 
the committee, my name is Dorsey Lee Baskin, Jr. Since 1999 I 
have been managing director of Andersen's Assurance 
Professional Standards Group, which has firm-wide 
responsibility for providing guidance on auditing standards, 
including professional standards relating to the preservation 
of audit work papers and client files.
    I have been at Andersen for almost 25 years since receiving 
my MBA from Texas A&M University in 1977. I am here with my 
partner, C. E. Andrews, who is managing partner for Andersen's 
global audit practice. He and I will both answer the 
committee's questions.
    I would like to make three essential points at the outset 
of our testimony. First, as our CEO has said, this is indeed a 
tragedy on many levels. Second, the committee and the broader 
public should know that Andersen came forward voluntarily and 
disclosed the destruction of documents by Andersen personnel. 
However improper that destruction was, Andersen did not hide 
from its obligations to do what it could to take corrective 
action. We promptly alerted all investigative authorities, 
including this committee.
    Although the firm was well aware of the potentially 
devastating impact this disclosure could have on our 
reputation, we did the right thing. We certainly are not proud 
of the document destruction, but we are proud of our decision 
to step forward and accept responsibility.
    Third, it bears emphasis that Andersen has cooperated fully 
and unreservedly with all of the ongoing investigations into 
the destruction of Enron-related documents. We are determined 
to get to the bottom of what happened. We have publicly 
acknowledged and will continue to acknowledge mistakes that we 
have made. We have tried and will continue to try to answer 
every question that is put to us. And we will take whatever 
decisive action is necessary to restore public confidence in 
the firm.
    I have to tell you in all candor that we are limited in 
what we can say today about the destruction of documents by 
Andersen personnel working on the Enron engagement. Our 
investigation into that destruction is far from complete. We 
have not yet had the opportunity to review all of the many 
relevant documents or to hear from all of the people who have 
relevant information.
    But, having said that, this is what I can tell you about 
Andersen's retention and destruction of documents. To begin 
with, it is the usual routine and wholly legitimate practice of 
auditors to preserve their final working papers while disposing 
of drafts, personal notes, and other materials that are not 
necessary to support the audit report.
    So far as I am aware, this is the policy of all of the 
large accounting firms. This policy toward document disposal 
reflects longstanding and sound audit practice. It is designed 
to assure that the audit work papers, which are the principal 
materials reflecting and documenting the conclusions of the 
audit, unambiguously reflect the judgments that actually were 
reached.
    This understanding of proper audit practice was reflected 
in the Andersen document retention policy in effect last fall, 
which provided that documents other than work papers ordinarily 
should be disposed of when no longer needed, but that such 
documents should be retained when litigation has commenced or 
is threatened.
    Of course, precisely when that occurs often will require 
the application of informed judgment to the particular 
circumstances of a given case, and that may well be a point at 
which reasonable people can differ. As for the destruction of 
Enron-related documents, we know that on October 23, just 6 
days after the SEC requested information from Enron, David 
Duncan, Andersen's lead partner on the Enron engagement, called 
an urgent meeting of the Enron engagement team, in which he 
organized an expedited effort to shred, or otherwise dispose 
of, Enron-related documents.
    This effort was undertaken without any consultation with 
others in the firm, or, so far as we are aware, with legal 
counsel. Over the course of the next several days, a very 
substantial volume of documents and e-mails were disposed of by 
the Enron engagement team. This activity appears to have 
stopped shortly after Mr. Duncan's assistant sent an e-mail to 
other secretaries on November 9, the day after Andersen 
received a subpoena from the SEC telling them no more 
shredding.
    Once this activity came to light, Andersen's response was 
immediate. Andersen notified the Department of Justice, the 
SEC, and all relevant congressional committees. At the same 
time, the firm suspended its records management policy and 
asked former Senator Danforth to conduct an immediate and 
comprehensive review.
    On January 15, approximately 2 weeks after our CEO learned 
about the document destruction, Andersen dismissed Mr. Duncan. 
The firm also placed three of our partners from the Enron 
engagement on administrative leave, pending completion of the 
investigation into their responsibility for these events.
    The firm relieved four partners in its Houston office of 
their management responsibilities, and the firm indicated that 
it will take disciplinary action against any Andersen personnel 
who are found to have acted improperly.
    I should address the question why Andersen took the 
forceful action it did regarding Mr. Duncan. In our view, Mr. 
Duncan's actions reflected a failure of judgment that is simply 
unacceptable in a person who has major responsibilities at our 
firm. He was the lead engagement partner for a significant 
client, exercising very substantial responsibility within the 
firm, yet our investigation indicated that he directed the 
purposeful destruction of a very substantial volume of 
documents, just as the government investigation was beginning.
    This is the kind of conduct that Andersen cannot tolerate. 
When Andersen CEO Joe Berardino testified before Congress 
almost 6 weeks ago, he observed that all of us here today, and 
many others who are not here, have a responsibility to seek out 
and evaluate the facts and take needed action. We have tried to 
fulfill that responsibility.
    We uncovered the document destruction. Our firm's 
management brought it to the attention of the governmental 
authorities. We already have started to implement decisive 
disciplinary and remedial action. We are continuing our 
investigation, resolved to take all steps that are necessary to 
restore public confidence in the integrity of our firm. Thank 
you.
    [The prepared statement of C.E. Andrews and Dorsey L. 
Baskin, Jr. follows:]

Prepared Statement of C.E. Andrews, Global Managing Partner--Assurance 
 and Business Advisory, Andersen, and Dorsey L. Baskin, Jr., Managing 
       Director, Assurance Professional Standards Group, Andersen
    Chairman Tauzin, Congressman Dingell, Chairman Greenwood, 
Congressman Deutsch, Members of the Committee.

    C.E. Andrews is managing partner for Andersen's global audit 
practice. Dorsey L. Baskin, Jr. is Managing Director of Andersen's 
Assurance Professional Standards Group, which has firm-wide 
responsibility for providing guidance on auditing standards, including 
professional standards relating to the preservation of audit work 
papers and client files.
    We would like to make two essential points at the outset of our 
testimony. First, this Committee and the broader public should know 
that Andersen came forward voluntarily and disclosed the destruction of 
documents by Andersen personnel. However improper that destruction was, 
Andersen did not hide from its obligation to do what it could to take 
corrective action; we promptly alerted all investigative authorities, 
including this Committee. Although the firm was well aware of the 
potentially devastating impact this disclosure could have on our 
reputation, we did the right thing. We certainly are not proud of the 
document destruction--but we are proud of our decision to step forward 
and accept responsibility.
    Second, it bears emphasis that Andersen has cooperated fully and 
unreservedly with all of the ongoing investigations into the 
destruction of Enron-related documents. We are determined to get to the 
bottom of what happened. And we will take whatever decisive action is 
necessary to restore public confidence in the firm.
    The Committee is holding this hearing at an extraordinary time. The 
circumstances surrounding the collapse of Enron are now being 
investigated by myriad committees and subcommittees of Congress, 
including this Committee; the House Financial Services Subcommittee; 
the Senate Commerce Committee; the Senate Governmental Affairs 
Committee; and the Senate Permanent Subcommittee on Investigations.
    In addition, of course, investigations are being conducted by the 
Securities and Exchange Commission; the U.S. Department of Justice; and 
the U.S. Department of Labor.
    And not least, Andersen is conducting its own inquiry into all of 
the circumstances of the Enron audit, including the destruction of 
documents by Andersen personnel. This is not a face-saving exercise on 
our part. It is absolutely essential to Andersen's continued success 
that there be a thorough, entirely credible determination of what 
happened and what went wrong. We know that our reputation is our single 
most important asset--and the one on which our firm's existence is 
premised. We therefore are determined to get to the bottom of what 
happened, to publicly acknowledge and correct any errors that we made, 
and to take all actions that are necessary to ensure that such mistakes 
do not recur in the future.
    The proof of our commitment to a thorough and transparent response 
to the events at Enron is visible in the steps that we already have 
taken. Andersen's CEO, Joe Berardino, testified before the a House 
committee in December and acknowledged that Andersen auditors made an 
error in judgment regarding the Enron audit. As we'll explain in more 
detail later, we likewise have acknowledged that the destruction of 
documents by the Enron engagement team was wrong, and we have taken 
forceful steps in response.
    Our commitment also is manifest in the full cooperation that we 
have given to all of the official inquiries into Enron's collapse. 
While others whose assistance has been sought by investigators have not 
cooperated and were nowhere to be seen at previous congressional 
hearings, we have answered every question put to us and appeared 
whenever requested. Although this is a very painful time for our firm 
and the questions are sometimes difficult to answer, Joe Berardino and 
C.E. Andrews, each testified before congressional committees last 
month. Mr. Berardino has addressed issues raised by the press, and he 
and Andersen's other top executives have tried to respond fully and 
honestly to the concerns both of our clients and of the tens of 
thousands of Andersen partners and employees who had no connection at 
all to the Enron audit.
    We have, moreover, gone the extra mile in cooperating with the 
governmental investigations:

 We have made diligent efforts to provide all relevant 
        materials to investigative bodies; to accommodate this 
        Committee, for example, we produced a substantial volume of 
        material on a significantly expedited basis.
 We gave the Committee the names of Andersen personnel who have 
        knowledge about events relating to Enron, including document 
        destruction, and, to the extent possible, encouraged these 
        individuals to cooperate with the Committee's requests for 
        interviews. We did not object to the testimony of any Andersen 
        personnel with direct knowledge relevant to the inquiry, 
        including Ms. Nancy Temple.
 We have provided briefings to congressional staff on Enron 
        accounting issues and, to the extent we are able, on matters 
        relating to the destruction of documents.
 We have invested incalculable man hours responding to 
        governmental requests for documents and information.
    Finally, to assure that we resolve all issues relating to the 
destruction of documents in a manner that is beyond reproach, we 
retained former Sen. John Danforth and his law firm to review 
Andersen's document retention policies and, ultimately, to ensure that 
Andersen takes all appropriate disciplinary action against personnel 
involved in improper document destruction.
    Our investigation into the destruction of documents by Andersen 
personnel is far from complete. We nevertheless will endeavor to be as 
helpful and forthcoming as possible--although we must add the caveat 
that there may well be questions that neither we, nor anyone else at 
Andersen, will be able to answer at this time to the Committee's 
satisfaction.
    This is what we can tell you about Andersen's retention and 
destruction of documents.
    To begin with, it is the usual, routine, and wholly legitimate 
practice of auditors to preserve their final work papers while 
disposing of drafts, personal notes, and other materials that are not 
necessary to support the audit report. So far as we are aware, this is 
the policy of all large audit firms.
    This policy towards document disposal reflects sound audit 
practice. It is designed to assure that the audit work papers--which 
are the principal materials reflecting and documenting the conclusions 
of the audit--unambiguously reflect the judgments that actually were 
reached. To this end, auditors routinely dispose of preliminary or 
draft documents that might create confusion about the auditor's 
analysis or conclusions. It is the audit work papers, rather than 
preliminary materials, that are the real evidence of how the audit 
proceeded.
    Generally Accepted Auditing Standards, commonly referred to by 
their initials as GAAS, provide guidance on the purpose and nature of 
documentation retained by auditors. The applicable general standard, 
Section 339 of the codification of audit standards, provides that 
auditors should keep for a period of time their working papers that 
support their reports.
    The standard provides that the purpose of working papers is to: (a) 
provide the principal support for the audit report, including the 
reference in the report to compliance with GAAS; and (b) aid the 
auditor in the conduct and supervision of the audit. Work papers 
consist of many different types of documents, including schedules and 
details of account balances; memoranda relating to business and 
financial reporting risks and management controls; work programs that 
direct the staff in the procedures and tests to be performed, and that 
may document the results thereof; documentation of procedures and tests 
such as confirmations of accounts receivable; records of counts of 
inventory; results of tests of the operation of controls as the audit 
progresses; conclusions reached as the result of tests; a copy of the 
entity's financial statements signed by management to evidence its 
responsibility for the final presentation; memoranda related to any 
accounting and audit issues that arose during the audit, including 
conclusions reached; representation letters from management; and a copy 
of the final audit report.
    In addition to these period-specific documents, auditors generally 
keep continuing or ``evergreen'' files that contain documents of use to 
audits for more than one year. Examples of these documents would be 
copies of loan agreements, charters, organization charts, and so on. 
Auditors also keep client-relationship files that contain records of 
billing for fees and other administrative matters. The client-
relationship files are not considered to be part of the work papers 
because they do not contain audit evidence relating to the audit 
report.
    According to the section 339 of GAAS, many factors affect the 
auditors judgment about the quantity, type, and content of the work 
papers for a particular engagement, including: (a) the nature of the 
engagement (b) the nature of the auditors report; (c) the nature of the 
financial statements, schedules, or other information on which the 
auditor is reporting; (d) the nature and condition of the client's 
records; (e) the assessed level of control risk; and (f) the needs in 
the particular circumstances for supervision and review of the work.
    The January 2002 revision of section 339 of GAAS adds to the 
standard that audit documentation should be sufficient to: (a) enable 
members of the engagement team with supervision and review 
responsibilities to understand the nature, timing, extent and results 
of auditing procedures performed and the evidence obtained; (b) 
indicate the engagement team member(s) who performed and reviewed the 
work; and (c) show that the accounting records agree or reconcile with 
the financial statements or other information being reported on.
    Section 339 of GAAS provides that the auditor should adopt 
reasonable procedures for safeguarding work papers and should retain 
them for a period sufficient to meet the needs of the auditor's 
practice and to satisfy any pertinent legal requirements of records 
retention.
    Typically the work papers for the previous year's audit are checked 
out at the beginning of the next audit by the engagement team and used 
as a source of information during the next audit. Hereafter, the work 
papers tend to sit in storage for many years.
    This understanding of proper audit practice was reflected in the 
Andersen document retention policy in effect last fall, which provided 
that documents other than work papers ordinarily should be disposed of 
when no longer needed--but that such documents should be retained when 
litigation has commenced or is threatened. Precisely when that occurs 
often will require the application of informed judgment to the 
particular circumstances of a given case, and that may well be a point 
on which reasonable people can differ. It also may be a point that 
looks quite different in hindsight than it did to people making 
decisions at the time.
    Looking at this policy now, in light of recent events and with the 
benefit of hindsight, we have to say that it is not a model of 
clarity--although our guess is that, if the document retention policies 
of other large businesses were subjected to the same close scrutiny, 
they likely also would reveal ambiguities and questions about their 
application to particular cases.
    As we mentioned, we are still investigating the destruction of 
Enron-related documents by Andersen personnel, and there is much still 
to learn. But we can say this much about what we know about the 
destruction of Enron-related documents. On October 17 the SEC requested 
information from Enron about its financial accounting and reporting. 
Several days later, on October 23, David Duncan, Andersen's lead 
partner on the Enron engagement, called an urgent meeting of the Enron 
engagement team at which he organized an expedited effort to shred or 
otherwise dispose of Enron-related documents. This effort was 
undertaken without any consultation with others in the firm or, so far 
as we are aware, with legal counsel.
    Over the course of the next several days, a very substantial volume 
of documents and emails--involving many of the Enron-related materials 
that ultimately were destroyed were disposed of by the Enron engagement 
team, including Mr. Duncan. So far as we have been able to determine to 
date, however, no audit work papers were destroyed.
    This activity appears to have stopped shortly after Mr. Duncan's 
assistant sent an e-mail to other secretaries on November 9--the day 
after Andersen received a subpoena from the SEC--telling them ``no more 
shredding.''
    Enron-related documents also were destroyed by others at the firm, 
although the volume and circumstances of their activities appear to 
have been quite different from those of Mr. Duncan. We are continuing 
our investigation into that aspect of these events.
    On Friday, January 4--shortly after the firm's internal inquiry 
informed Andersen's CEO about the document destruction--Andersen 
voluntarily notified the Department of Justice and the SEC. On January 
7, Andersen met with Justice Department and SEC attorneys and briefed 
them on what we knew. On January 10, Andersen also disclosed the 
destruction to all relevant congressional committees and to the public. 
At the same time, the firm suspended its records management policy, 
asking Sen. Danforth to conduct an immediate and comprehensive review 
of that policy and to recommend improvements.
    On January 15, approximately two weeks after our CEO learned about 
the document destruction, Andersen dismissed Mr. Duncan, the lead 
engagement partner. The firm also placed three other partners from the 
Enron engagement on administrative leave pending completion of the 
investigation into their responsibility for these events. The firm 
relieved four partners in its Houston office of their management 
responsibilities. And the firm indicated that it will take disciplinary 
action against any Andersen personnel who are found to have acted 
improperly. Anyone at Andersen who purposely destroyed work papers, or 
who destroyed Enron-related documents after having been informed of the 
Nov. 8 subpoena to Andersen, will be dismissed; discipline for other 
improper conduct will depend on the nature and severity of the acts 
involved.
    Finally, as we have mentioned, Andersen retained Sen. Danforth and 
his firm to ensure that all appropriate steps are taken to deal 
internally with misconduct by Andersen personnel.
    We should address the question why Andersen took the forceful 
action it did regarding Mr. Duncan. In our view, Mr. Duncan's actions 
reflected a failure of judgment that is simply unacceptable in a person 
who has major responsibilities at our firm. He was the lead engagement 
partner for a significant client, exercising very substantial 
responsibility within the firm. Yet our investigation indicated that he 
directed the purposeful destruction of a very substantial volume of 
documents--and in doing so, he gave every appearance of destroying 
these materials in anticipation of a government request for documents. 
This is the kind of conduct that Andersen cannot tolerate.
    The case of Mr. Duncan was clear enough to allow us to draw 
conclusions about his responsibility at an early stage of the inquiry. 
That is not true of other Andersen personnel who were involved with the 
destruction of documents. Our investigation continues; persons who are 
found to have acted inappropriately, whatever their position in the 
firm, will be dealt with accordingly.
    Let me conclude by noting that when Joe Berardino testified almost 
six weeks ago, he ended his remarks by stating that ``[a] day does not 
go by without new information being made available and I would observe 
that all of us here today--and many others who are not here--have a 
responsibility to seek out and evaluate the facts and take needed 
action.'' We have tried to fulfill that responsibility. We uncovered 
the document destruction; our firm's management brought it to the 
attention of the governmental authorities; we already have started to 
implement decisive disciplinary and remedial action; and we are 
continuing our investigation, resolved to take all steps that are 
necessary to restore public confidence in the integrity of our firm.
    This is, of course, a very painful and difficult period for 
Andersen. But Andersen's great strength is its 85,000 employees in 84 
countries around the world; its 28,000 Andersen Personnel in the United 
States contribute to the economic life of virtually State in the Union. 
We are determined to respond to this test openly and with complete 
candor, and to face up honestly to our responsibilities to our clients 
and to the public.
    Thank you.

    Mr. Greenwood. The Chair thanks the gentleman.
    Ms. Temple, do you have an opening statement?
    Ms. Temple. I do not, Mr. Chairman.
    Mr. Greenwood. Mr. Odom, do you have an opening statement?
    Mr. Odom. No, sir.
    Mr. Greenwood. Mr. Odom, I understand from your attorney 
that you have a letter addressed to me that you would like to 
have incorporated into the record?
    Mr. Odom. Yes, sir.
    Mr. Greenwood. Okay. Without objection, that letter will be 
incorporated into the record.
    The Chair would note for the witnesses and for the members 
that each of you should have a binder that has--two binders 
that have in it the documents to which we will refer during the 
course of the hearing, and we will refer to the documents by 
tab number so that you can refer to them to assist you in 
responding to the questions.
    And I would suggest at this point you might want to turn to 
Tab 28.
    Mr. Burr. Mr. Chairman, do we also have a copy of Mr. 
Odom's letter?
    Mr. Greenwood. Yes. The staff will copy and circulate Mr. 
Odom's letter.
    [The material referred to follows:]

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    Mr. Greenwood. The Chair recognizes himself for 5 minutes 
for inquiry. And let me address my first question to Mr. Baskin 
and/or Mr. Andrews for response.
    I would like to read for you a quote from a Georgetown law 
professor who is an expert on corporate legal ethics. Mr. 
Milton Regan from the Washington Post last Sunday says this. 
And if you look at Tab 28 in your binder, it says that as soon 
as an accounting firm knows that a company it audits is under 
government investigation, the firm's general counsel or 
compliance officer would typically send a notice reminding 
employees of the need to preserve documents related to the 
inquiry and that, ``requirement of preserving documents would 
override any internal document retention policy.''
    Mr. Lynn Turner, the former top accountant for the SEC and 
a longtime member of the Profession in Accounting Firms sent me 
a letter to the same effect, saying that an SEC inquiry into a 
client would normally prompt a letter from the auditor's 
counsel to its employees, directing them to preserve related 
records. I would like to make this letter part of the record.
    [The letter follows:]

                                                   January 24, 2002
The Honorable James C. Greenwood
Chairman, Subcommittee on Oversight and Investigations
Committee on Energy and Commerce
U.S. House of Representatives
Washington, D.C. 20515-6115
    Dear Chairman Greenwood: For almost twenty years, I was associated 
with the international accounting firm, Coopers & Lybrand, (now 
PricewaterhouseCoopers). I served in various capacities in the firm 
including a partner, member of the national accounting and auditing 
office and as the partner responsible for the National High Technology 
audit practice. More recently I served as Chief Accountant of the 
Securities and Exchange Commission. I am currently an accounting 
professor on the faculty of the College of Business of Colorado State 
University.
    It has been my experience in practice, when an accounting firm 
becomes aware an investigation or litigation will occur with respect to 
the performance of an audit, the communication to the audit team is 
both in writing and verbal and clear and concise with respect to 
document retention. The audit team is informed that any documents in 
possession of the firm, its partners or employees are to be maintained 
and no documents should be destroyed, altered or otherwise affected.
    I would be pleased to provide testimony to this Committee at some 
future date to assist the Committee in its work related to the Enron 
matter and respond to any further questions you might have.
            Sincerely,
                                                     Lynn E. Turner

    Mr. Greenwood. Finally, last Sunday on Meet the Press, your 
CEO and managing partner, Mr. Berardino said essentially the 
same thing. Let me show you his quotes which should be in Tab 
23 of your binder.
    He says that your policy states, ``exactly that,'' meaning 
that upon the SEC inquiry all shredding should have stopped. He 
even went further, saying that if there is a, ``reasonable 
anticipation of an investigation,'' all destruction should 
stop.
    So I guess the simple question is: Why didn't anyone at 
Andersen notify its employees that an SEC inquiry into Enron 
financial and accounting issues had begun and that normal 
document destruction policies were suspended? Why did 
Andersen's counsel wait nearly 3 weeks to do so?
    Mr. Andrews. Well, Mr. Chairman, in terms of the timing of 
that particular period of time and what is going on, and as to 
why our legal counsel did not do that, I can't address 
specifically the legal counsel response. But let me at least 
explain the situation as we see it, as we understand it.
    First, we clearly recognize that audit work papers should 
never be destroyed. That is completely unacceptable. We 
recognize that nothing can be destroyed once a subpoena is 
received. That is completely unacceptable. And we also 
recognize that judgment therefore needs to be applied in a 
situation, to apply when any kind of documents cannot be 
destroyed.
    When we were in this period that you are referring to, in 
this late October period, there was a lot going on as it 
related to the company. At that point, as you indicate, the 
company had just released its third quarter. It had been 
notified that it was the recipient of an SEC investigation, a 
lot of activity was taking place.
    Our responsibility and our policy requires the engagement 
partner, who in this case was Mr. Duncan, to assume and accept 
responsibility for managing our policies. As you know, as the 
record states, on October 23, Mr. Duncan called a meeting to 
review our policies as it pertains to work papers and documents 
and other related materials. At the conclusion of that meeting, 
it appears that it led to a vast destruction of documents as a 
result of that.
    Mr. Greenwood. Mr. Andrews, let me interrupt you for a 
second. My understanding of your company's position is that on 
the 23rd, Mr. Duncan then set off this process, this initiation 
to destroy documents. But what we can't understand, what I 
would like to know is why in God's name, on October 23, didn't 
the chief counsel for your company, the top brass at Andersen, 
immediately send out word to everyone in the company, 
particularly those involved in the Enron case, to not touch 
documents, not shred a document? Why didn't that come down from 
the top immediately?
    Mr. Andrews. With regard to that question, Mr. Chairman, as 
it is stated in our policy, the responsibility for that rests 
with the engagement partner, a very seasoned, experienced 
individual. And we rely on the engagement partner to make that 
judgment, to make the judgment of what to do, as well as when 
to seek counsel. Without the knowledge, without our knowledge, 
without the knowledge of the legal counsel, that meeting was 
called, that meeting was held, and they proceeded to destroy 
documents, without consultation, without inquiry as to whether 
it was proper or improper. And we find that situation 
appalling. We did not----
    Mr. Greenwood. And all of Mr. Duncan's superiors in the 
company, including Mr. Berardino, and knowing this meltdown was 
happening at Enron, knowing that this SEC investigation was on, 
sat silently, just assuming that Mr. Duncan would do the right 
thing? They gave him no direction whatsoever?
    Mr. Andrews. Mr. Chairman, again, Mr. Duncan had been 
advised of our policies in the memo on October 12. We expect 
our engagement partners to understand our policies and apply 
them, and we were not aware of the meeting that took place on 
October 23, to the best of my knowledge.
    So he directed the action. We find that action totally 
unacceptable. That is why when we began our investigation, 
which is in process, and we learned of it, we took the action 
that we have taken to date. But the investigation is in process 
and not completed. We took the action aggressively, because it 
is a situation we will not tolerate. It is not the way Andersen 
personnel are trained to perform, and it is completely 
unacceptable. So it is totally out of bounds with good judgment 
in that situation. And we took action as a result of that.
    Mr. Greenwood. Let me turn to Ms. Temple.
    Since I don't have any other members here right now, I will 
continue with the questioning. We have a memo from you, Ms. 
Temple, that is dated, I believe, November 10. Tab 20 in your 
notebook. And that memo is very explicit. It is very clear that 
you took action on that date, in the form of that memo, to make 
it crystal clear that no one was to destroy documents.
    Can you explain to us why it took you until November 10 to 
issue a statement with that clarity, when a month earlier you 
knew that the question of retention and destruction of 
documents was going to be critical to investigations and to 
litigation?
    Ms. Temple. Yes, Mr. Chairman. I will tell you the 
circumstances concerning the November 10 memo and the facts as 
I understood them in the previous time period. On November 10, 
the memo was sent--it was drafted by our outside counsel, a law 
firm--Davis, Polk & Wardwell.
    Mr. Greenwood. When was that firm retained?
    Ms. Temple. I did not personally retain that law firm. I 
know I spoke to a partner at that law firm on October 16.
    Mr. Greenwood. Is your testimony that you do not know when 
they were retained?
    Ms. Temple. I don't recall the exact date of the retention. 
I know I spoke to a partner at that law firm on October 16.
    Mr. Greenwood. You may proceed.
    Ms. Temple. It is the legal group's practice and protocol, 
when Arthur Andersen receives a subpoena or a request for 
documents, to send a written notification reminder to the 
members of the engagement team, and we asked our outside 
counsel to assist us in that process.
    To the best of my recollection, the firm received a 
subpoena from the Securities and Exchange Commission the end of 
the business day on November 8, and a voice-mail was 
distributed to the audit engagement team notifying them of that 
the following business day. And once this e-mail was drafted, 
it was circulated to the engagement team.
    Now, moving back in timeframe to the previous period that 
you talked about, the firm does have a written policy that 
provides guidance. It is self-enforcing, and we trust our 
partners to exercise their good judgment and to consult with 
either the legal group or the practice directors, as 
appropriate.
    Mr. Greenwood. Let me interrupt you for a second. I asked 
Ms. Temple when Davis, Polk was retained for this purpose. And 
her response is that she didn't know. Mr. Baskin, Mr. Andrews, 
do you know when this firm was retained?
    I want to remind you that I asked you last night to be 
prepared to answer that question this morning.
    Mr. Andrews. Mr. Chairman, the firm was retained on October 
9 and commenced work with us on October 16.
    Mr. Greenwood. Okay. And what was the purpose for retaining 
that firm on October 9?
    Mr. Andrews. Well as--if we just--for a moment, what was 
going on during--at that particular period of time, around that 
October 9 time----
    Mr. Greenwood. Are they handling the potential litigation 
for the firm now?
    Mr. Andrews. Are they handling it now? Yes, they are. What 
was going on at that particular time was that we were 
involved--the company was closing its third quarter. They were 
about to reach conclusions on the third quarter. There were a 
lot of financial reporting issues occurring during that period 
that were obviously unusual and were concerning. So we engaged 
them to help us with the financial reporting issues and with 
possible litigation.
    Mr. Greenwood. On October 9, when you retained this firm, 
you did so because Andersen considered it likely that you were 
going to confront litigation?
    Mr. Andrews. No, Mr. Chairman, that is not what I said. We 
engaged them to help us with that third quarter closing as it 
related to financial reporting issues and possible litigation 
and within the accounting literature, if you will, the term 
``possible'' is used frequently but does not mean probable. We 
had no reason at that particular point in time to expect 
litigation, no.
    Mr. Greenwood. Even given the Sherron Watkins memo that you 
were aware of at that time, you didn't think that it was likely 
that you were going to face litigation? You hired the firm that 
is now handling your litigation, but on October 9, you didn't 
hire them for that purpose?
    Mr. Andrews. On October 9 we made the decision, the 
principal reason that we were hiring the firm was to help with 
the complex issues that were going on in the third quarter. 
There were a number of accounting issues. There were disclosure 
issues. And there were issues, as you referred to, the Ms. 
Watkins memo. There were a number of items going on in that 
third quarter that it would be normal in a situation like that, 
I believe in my experience, to have--we engaged legal counsel 
to advise us on things in many other situations.
    Mr. Greenwood. Let me ask you, Ms. Temple, when did you 
decide that it was likely that Andersen was going to face 
litigation over this matter?
    Ms. Temple. I don't recall making a particular 
determination that Andersen was likely to face litigation or 
being asked to make that determination. At this time, looking 
back in retrospect, I can see all of the events that eventually 
did occur that we did not anticipate at the time. And, as Mr. 
Andrews stated, litigation is a possibility in this profession.
    Mr. Greenwood. I believe you told our investigators that it 
wasn't until sometime in November that you thought that it was 
likely that there would be litigation?
    Ms. Temple. Once it came to my attention that the company 
intended to restate prior financial statement reporting 
periods, I definitely considered that the firm would likely be 
sued at that point.
    Mr. Greenwood. When is the first time that Davis, Polk gave 
the company any advice whatsoever, or counsel whatsoever, with 
regard to document retention and destruction?
    Ms. Temple. I believe in my conversations on October 16, I 
discussed the documentation and retention issues that had 
arisen as of that date with Davis, Polk.
    Mr. Greenwood. Mr. Baskin or Mr. Andrews, or Ms. Temple, 
you may want to answer this question. The document in Tab 29 in 
your binder is a copy of an Enron announcement to its employees 
and others on the Enron worldwide e-mail list, which I believe 
includes Andersen, on October 25, 2001, telling them to 
preserve records relating to the related party transactions, 
including the accounting of those transactions.
    Did Andersen learn about this action by Enron, which, by 
the way, also seems rather late given that it is 8 days after 
Enron learned of the SEC inquiry, and, if so, why didn't 
Andersen act right then to order its employees to do the same?
    Mr. Andrews. This is the first time that I have read this 
memo. But as it pertains to our actions, again we believe that 
it was the engagement partner's responsibility in this 
situation, given what was occurring in that late October 
period--which is when the date of this memo--that there was 
enough information available that, in that partner's judgment, 
the instructions and oversight of that partner would in fact 
cause us not to destroy documents, and certainly you would not 
convene a meeting and give instructions, if you will, if that 
apparently is what happened, to destroy documents.
    So we would agree that during this period, it would be 
appropriate to, at a minimum, seek counsel before doing such an 
exercise. And destruction of documents in that period is wrong. 
We have admitted that. It is wrong. And once we learned of 
that, once we learned of that in our investigation, we took 
firm action. That is not Andersen. That is not what we 
encourage our employees to do. It is inappropriate.
    Chairman Tauzin. The chairman of the subcommittee has had 
to go to the floor to make a vote and will return shortly. His 
time has expired, but we will explore this question further in 
detail as we go forward.
    The Chair is pleased to recognize the ranking member of the 
subcommittee, Mr. Deutsch, for a round of questions.
    Mr. Deutsch. I had a chance to read your testimony, but not 
to listen, because we are trying to save time in terms of 
people's comments.
    Mr. Andrews, if you can give me a sense of has anything 
like this, in your knowledge, ever occurred before in a ``Big 
5'' accounting firm, with the destruction of documents with the 
time line that we are here.
    Mr. Andrews. I want to make sure I understand.
    Mr. Deutsch. Basically the time line. You are aware of an 
investigation and documents were destroyed? I mean, I accept 
the fact that documents should be destroyed after an audit. But 
I guess the disturbing issue is just the time line, that 
apparently people did know that there was an SEC investigation 
and then the documents were still destroyed, even though they 
knew that there was an investigation.
    I mean, that seems to me the heart of the issue. And then 
the question becomes, you know--I mean, why were they 
destroyed, then? Because that really seems like where there is 
a conflict. Whether it is illegal or not, we are not going to 
determine today. But factually, that does seem, if this 
occurred--would you question whether that occurred?
    Mr. Andrews. Whether do you----
    Mr. Deutsch. From the timing, that it occurred after--at 
least employees of Andersen were aware of an SEC investigation?
    Mr. Andrews. Congressman, if I may, let me talk about the 
time line, what occurred, and what our conclusions are related 
to that in this stage of our investigation, and recognize--my 
qualification is that we are only partially through our own 
investigation. We took action at a date in that investigation 
when we felt we had conclusive information to take some action. 
But we are not completed with the investigation, as is the SEC, 
as is the committee investigating this, as is the Department of 
Justice. So it is in process.
    Now, what happened during that period and what was going 
on, I believe I am agreeing with your statement in the sense 
that once the company had been notified of the SEC 
investigation, once the company had was a recipient of a 
lawsuit, once the company was clearly on high alert--and we 
were aware of that; I agree we were all on high notice at that 
point. That needs to be a very careful period of time.
    And what in fact happened apparently is the next day, after 
receipt of the SEC letter, October 23, Mr. Duncan had a meeting 
of the engagement team, which then led to a massive 
destruction, a rush, an expedited destruction of documents. I 
agree. That is totally inappropriate. We do not condone that. 
That is not what the firm's policy would encourage to do.
    Mr. Deutsch. Can I just inject the fact--so the time line 
that you are saying is even after Andersen itself received 
notice, not public notice, not Enron receiving notice of the 
SEC, but you are testifying that Andersen actually received 
notice and then the destruction continued?
    Mr. Andrews. Let me clarify that. We were aware of the 
notice that the company had received.
    Mr. Deutsch. Not Andersen?
    Mr. Andrews. Correct.
    Mr. Deutsch. There is some issue, because your regulations 
apparently talk about notice to Enron. That again seems to be 
gaming the system. A notice to Andersen itself that, you know, 
you are not in--my understanding is your internal regulations 
or procedures state that you are not obligated to--that you are 
not obligated not to destroy documents until you are, as 
Andersen, aware of an investigation.
    Again, let me tell you that that perspective that I have is 
just, you know, looking for loopholes that are not just 
appropriate, the same way that Enron was looking for loopholes. 
If that--that distinction, I think is worth noting. If you can 
respond to that.
    Mr. Andrews. Yes, Congressman, let me respond. Let me cover 
a couple of points. First of all, if the policy is unclear, 
that obviously is a problem. What we have done with the policy, 
once we learned of this, we have suspended that policy, put in 
place an interim policy, and we have engaged and hired former 
Senator Danforth to construct a policy that is as clear as 
possible.
    But let me back up and cover the point of the policy that 
existed at that time and why this action would or would not be 
appropriate.
    Mr. Deutsch. Let me also tell you, 5 minutes goes very 
fast, and so I just want to follow up on two specific 
questions. I am told specifically by our counsel that Ms. 
Temple--that the position? In Enron did not have a subpoena 
yet, and, based upon outside counsel, you were not required to 
put out a memo on document retention. So that was apparently 
your internal policy.
    First of all, why was it? But then--you know, I mean, it 
is--is Mr. Duncan telling you, or are you able to tell us that 
he was following company policy? That is, that he didn't do 
anything wrong is his position; that he didn't do anything 
wrong at this point.
    Mr. Andrews. Congressman, I cannot say more strongly, Mr. 
Duncan was not following company policy. Mr. Duncan broke 
company policy.
    Mr. Deutsch. Is he saying that he is following company 
policy? Is his position that he was following company policy?
    Mr. Andrews. Congressman, I can't respond for Mr. Duncan.
    Chairman Tauzin. The gentleman's time has expired. The 
Chair recognizes himself for a round of questions. First of 
all, I want to turn to the week of October 9. You have 
testified October 9 was the date that Arthur Andersen hired 
counsel, outside counsel, right? And the outside counsel firm 
was Davis, Polk & Wardwell of New York, right? Is that correct, 
sir?
    Mr. Andrews. Yes, that is correct.
    Chairman Tauzin. My understanding is that is a litigation 
team, right?
    Mr. Andrews. Davis, Polk is a reputable firm. I am sure 
they do litigation and other things. But we hired them for 
purposes to help us with the financial reporting and possible 
litigation.
    Chairman Tauzin. And possible litigation, right? October 9.
    I want to turn to you, Ms. Temple, real quickly. Sometime 
before the week of October 12, in your interviews with us you 
informed us that there was a conference call about the Enron 
engagement team's compliance with the document retention 
policy.
    Mr. Duncan says that it was you who raised the question 
about the retention policy. You had some other recollections of 
that conversation. Give us your recollections of what happened 
in that conference call. And what date was that?
    Ms. Temple. Sure. Let me give you the context of my role in 
this matter. I was asked, beginning on September 28, 2001, to 
participate in a conference call. I understood that the firm 
was addressing one accounting issue that had risen at that 
point in time. In between that time and October 12, I provided 
legal advice, including, after consultation with my supervisor 
and others, about specific documentation and retention issues.
    Chairman Tauzin. Ms. Temple, in that conversation that 
occurred right about the time that the firm was hiring other 
litigation counsel--you are the litigation attorney for the 
firm, is that not correct?
    Ms. Temple. My background is in litigation, correct.
    Chairman Tauzin. But they just hired an outside litigation 
firm to advise them on possible litigation about the same time 
there is a conference call and there is a discussion about the 
retention policy. And obviously the memo is sent out, following 
it, regarding that policy that includes the information about 
destruction of documents as well.
    You said something to our investigators about conversations 
in that conference call referencing changing memos and deleting 
information from past memos; substituting a memo to the file 
for an old memo with a new memo. Is that accurate? Was that 
discussion held in that conference call?
    Ms. Temple. The advice I gave was different from that, Mr. 
Chairman. The advice I gave was----
    Chairman Tauzin. What were the questions being asked that 
you had to give advice?
    Ms. Temple. The team was discussing a draft of a memo about 
a particular accounting issue on asset impairment. The advice 
that my supervisor and I gave initially was that memo, which 
was being currently drafted, needed to be dated----
    Chairman Tauzin. What did they want to do that you told 
them they couldn't do? What did they ask you to do?
    Ms. Temple. I don't recall, with respect to that particular 
legal advice, that there was a question raised. But we pointed 
out to the team----
    Chairman Tauzin. Was there not a request or discussion of 
substituting a new memo for an old memo, backdating a memo to 
the file?
    Ms. Temple. No, there was a not a question about backdating 
that particular memo. But the date----
    Chairman Tauzin. Was there a question about substituting it 
and deleting information from the memo?
    Ms. Temple. There was a question in that current memo that 
was raised: Can we delete a sentence acknowledging that the 
firm had given incorrect accounting advice in the first quarter 
of 2001? And I said absolutely not.
    Chairman Tauzin. That is what I want to know. Essentially 
you said don't do that?
    Ms. Temple. Right.
    Chairman Tauzin. Is it customary that in those kind of 
discussions, when the firm finds itself in error, that anyone 
would suggest substituting memos or deleting information that 
was in memos already in the file? Was that unusual 
conversation?
    Ms. Temple. I expect the engagement partners to raise 
questions about documentation and seek advice, which they were 
doing, though other legal advice that I gave on documentation 
was the--the memos for any prior periods, first quarter 2001, 
year end 2000, could not be changed.
    Chairman Tauzin. You are telling them to make no changes. I 
understand that. I am asking you, was it customary? Was this 
unusual for members of the firm to be talking to you about 
changing documents, altering documents, substituting documents 
that were on file already with regards to Enron operation?
    Ms. Temple. At the time, based on my recollection, I 
understood that there were good faith questions that were being 
asked about how to properly document the firm's----
    Chairman Tauzin. Was it a good faith question to change a 
memo that is already in the file with a new memo?
    Ms. Temple. I received the question and consulted with my 
supervisor----
    Chairman Tauzin. You said, don't do it.
    Ms. Temple. I gave the advice. To the best of my knowledge, 
the advice was followed.
    Chairman Tauzin. Were you shocked that they would raise 
such a question? Were you alarmed? Were you disturbed? Did it 
bother you, as litigation counsel for the firm, that any member 
would even suggest altering the record, altering documents, 
substituting memos to the file?
    Ms. Temple. I don't recall everything going on in my mind. 
I recall making sure and giving advice to make sure that the 
written record was complete and accurate and truthful. And I do 
recall seeing that my advice was followed.
    Chairman Tauzin. And my time is up, but you do recall also 
that October 16 memo, that you did discuss with them changing 
that memo so that your name is not included because you might 
be a potential witness? Is that correct?
    Ms. Temple. I do recall giving legal advice, after 
consultation with others, including outside legal counsel 
Davis, Polk, that the audit partner should document the 
recommendations and communications he had with the client about 
the client--Enron's draft press release. And I did, after 
consulting with outside legal counsel--it is our standard 
practice in the legal group to advise the engagement team not 
to write down and discuss in their memos legal advice that the 
legal group might give, because it may be a waiver down the 
road of attorney-client privilege.
    Chairman Tauzin. Thank you. The Chair recognizes the 
gentlelady, Ms. DeGette, for a round of questions.
    Ms. DeGette. Thank you, Mr. Chairman.
    Ms. Temple, I think that it would be helpful if you would 
take the notebook in front of you and turn to document No. 27 
before we get started. Now, Ms. Temple you have been at Arthur 
Andersen a couple of years; is that right?
    Ms. Temple. I started at Arthur Andersen in July of 2000.
    Ms. DeGette. Before that you were a litigation partner at a 
law firm, I believe?
    Ms. Temple. Yes.
    Ms. DeGette. Okay. And I assume you are familiar with 
Arthur Andersen's policy on document retention and destruction?
    Ms. Temple. Yes.
    Ms. DeGette. That is the document that I showed you, 
document No. 27, right?
    Ms. Temple. Yes.
    Ms. DeGette. If you can tell me, very briefly, under what 
circumstances you believe documents should be retained? What--
when is it? What is the trigger under which documents need to 
be retained?
    Ms. Temple. There are several provisions in the policy that 
address retention.
    Ms.  DeGette. In fact, there is an exhibit to document No. 
27 here, Exhibit 1, that says examples of situations to be 
reported. And that is a list of examples of situations where if 
you see that coming, then you treat that as threatened legal 
action under section 2.5 of the litigation procedures, and you 
retain them; is that right?
    Ms. Temple. Yes. There is a list of examples to be reported 
to the legal group, that calls for notification. I don't 
believe----
    Ms. DeGette. That would trigger, then, a notification such 
as the one that you made, I think, on October 12 in your e-
mail, right? It is not just threatened litigation, is it? There 
are other things that would trigger Arthur Andersen to 
recommend retention of documents?
    Ms. Temple. The policy does require retention of all 
related materials if there is threatened litigation or----
    Ms. DeGette. Or other situation, right? And one of those 
situations would be oral indications from management or owners 
that the firm was somehow responsible for the failure of 
operations or the failure to detect fraud, right? That is the--
that is the third one on the list of examples of situations to 
be reported, right?
    Ms. Temple. Right. This list of examples is from the policy 
statement No. 780, which requires notification to the legal 
group of those examples.
    Ms. DeGette. Right. So now there was a memo that was 
written on August 15, 2001, from Sherron Watkins, an Enron 
vice-president, alleging improper accounting and all kinds of 
other problems. Was the legal department aware of that?
    Ms. Temple. I don't recall if I was aware of that 
particular document. I was aware of circumstances, about 
allegations by an employee of Enron, and the fact that Vincent 
& Elkins had conducted an investigation and concluded and 
reported positively to the board the week of October 8.
    Ms. DeGette. So you are aware in August an employee had 
made these allegations, and then Vincent & Elkins had done an 
investigation also in August; is that right?
    Ms. Temple. Not exactly. Before October 12, I was aware 
that Vincent & Elkins had been engaged and completed and 
reported orally to the board that the results of their 
investigation were positive. And the engagement team also 
assured the practice directors who were being consulted at that 
time and myself that they had reviewed the information about 
the allegations, and that the allegations were, to the extent 
that they had any information in them in reference to 
transactions, involved transactions that the audit team had 
carefully reviewed in its prior work.
    Ms. DeGette. So you thought that because Vincent & Elkins 
had said there was no problem, that that did not trigger any 
kind of requirement; is that correct? Yes or no, please.
    Ms. Temple. No, that is not what I would think at the time.
    Ms. DeGette. Now, what caused you to send that memo on 
October 12? Did you do that on a regular basis?
    Ms. Temple. There were several factors that caused me to 
send the memo on October 12.
    Ms. DeGette. Let me back up for a minute. How many times in 
your 2 years, roughly, at Andersen did you send memos like this 
to remind people of the document retention and destruction 
policy?
    Ms. Temple. I don't recall the number of times.
    Ms. DeGette. Had you done it before?
    Ms. Temple. I believe I had referred people to the firm's 
policies on document retention and destruction.
    Ms. DeGette. How many times before?
    Ms. Temple. I don't recall the number of times.
    Ms. DeGette. One time? Five times? Ten times?
    Ms. Temple. To the best of my recollection, at least one 
other occasion.
    Ms. DeGette. Was that in relation to Enron, or was that in 
relation to another client?
    Ms. Temple. No, that was not in relation to Enron.
    Chairman Tauzin. The gentlelady's time has expired. I would 
ask that the gentlelady have 1 additional minute and would ask 
her to yield, if she will.
    Ms. DeGette. Before I do that, Mr. Chairman, I have many, 
many more questions. I would hope you would have a second round 
of questioning today. The chairman of the subcommittee is 
nodding, and I thank him.
    And with that, I'd be happy to yield.
    Chairman Tauzin. I thank the gentlelady.
    I just want to clarify your testimony to the gentlelady's 
questions. You indicated that Vinson & Elkins issued a positive 
report. I want to quote from that report: ``there is a serious 
risk of adverse publicity and litigation. It also appears 
because of the inquiries and issues raised by Ms. Watkins, 
Arthur Andersen will want additional assurances that if anyone 
had no agreement with LJM, that LJM would not lose money,'' et 
cetera. Is that a positive report?
    Ms. Temple. As I recall the outcome of the report as 
reported to me----
    Chairman Tauzin. You have a copy of this--I believe we've 
submitted it. You have a copy of this letter, don't you, from 
Vinson & Elkins? You saw it yourself, didn't you?
    Ms. Temple. After the week of October 12, I did receive a 
copy.
    Chairman Tauzin. Here's the point, Ms. Temple. We're trying 
to get the facts here, but if you will characterize a report 
that indicates a decline in the value of Enron stock and a 
serious risk of adverse publicity and litigation as a positive 
report from the attorneys, we're going to have trouble with 
your testimony today.
    Ms. Temple. Later on, when I did receive a copy of the 
report and sent a copy to outside counsel, I did note the 
comments that you're referencing, but I also noted that the law 
firm reported that there was nothing further to follow up on at 
that point in time; and the law firm was representing Enron 
Corporation, not Arthur Andersen. And I understood and recall 
at the time thinking that there might be a challenge to the 
business judgment decisions of Enron to enter into certain 
trade----
    Chairman Tauzin. Did you know at the time that Vinson & 
Elkins had signed off on these agreements as a counsel for the 
firm that may have been a conflict of interest in them 
commenting on them now?
    Ms. Temple. I don't recall the circumstances.
    Chairman Tauzin. You are not aware of that?
    Ms. Temple. I don't recall at this time.
    Chairman Tauzin. I thank the gentlelady.
    The Chair recognizes the gentleman, Mr. Stearns, for a 
round of questions, and the chairman of the subcommittee will 
be in the chair. Mr. Bilirakis is recognized for----
    Mr. Stearns. That's okay. Let Mr. Bilirakis go.
    Mr. Bilirakis. Well, we're both from Florida.
    Either Mr. Baskin or Mr. Andrews, in your January 15 of 
this year press release, Tab 22, your firm stated that it did 
not believe that any work papers had been destroyed; and I ask 
you the question, how were you able to come to that conclusion, 
and are you still confident with that?
    That was just a few days ago, I might add. I guess we 
realize that.
    Mr. Andrews. Let me respond to that and why the press 
release says that, Congressman.
    Our investigation is extensive, and this is very complex 
and will take an extended period of time. We are not finished 
with our investigation, what we are doing, Davis, Polk, our 
counsel, is conducting the investigation, and we actually have 
gone a second level and hired former Senator Danforth to come 
in and review the results of our best investigation. So we are 
in process, and it is far from finished, as is your 
investigation, as well as the SEC's.
    So what we did and what happened on January 15, at that 
point in time, that investigation being conducted by Davis, 
Polk had determined enough information that we believe 
warranted the action we took. The point that I want to make is, 
that is just an interim step, the interim step, because our 
investigation is far from complete and we intend to complete 
the investigation and take the appropriate action----
    Mr. Bilirakis. Mr. Andrews, with all due respect, you're 
talking about the action you took warranted the action you 
took. The question is, you had come to the conclusion that none 
of the work papers had been destroyed at that point in time, as 
of January 15. Is that still your conclusion?
    Mr. Andrews. Congressman, at this point in time, there 
were--let me define for a moment ``work paper.'' Audit work 
papers are the permanent record of the audit. At the point in 
time that we took the action on January 15, we were not aware, 
and I am not aware today, of the destruction of any audit work 
papers. But my caution, my only caution, is that our 
investigation is in process, and until we complete the 
investigation, obviously I cannot say that that is the 
conclusion until the investigation is done.
    Mr. Bilirakis. So even today you're not acknowledging that 
any work papers were destroyed? So we're going through this 
trying to determine why they were destroyed and whether they 
were destroyed legally and that sort of thing, but you're not 
acknowledging that they have even been destroyed?
    Mr. Andrews. Let me clarify. There are different types of 
documents that exist in an audit process. One is--one example 
would be the permanent audit work papers, when you complete the 
audit. So, for instance, for fiscal 2000, we completed the 
fiscal 2000 audit, and there's a permanent set of work papers 
that is developed and retained as a result of that.
    Mr. Bilirakis. And those are permanent and they are never 
destroyed. Mr. Baskin stated that earlier.
    Mr. Andrews. They are destroyed after a statute period, 
which is 6 years in the United States, but they would not be 
destroyed. So when we took the action on the 15th, it was not 
because audit work papers had been destroyed. What it was a 
result of is the extensive destruction of other documents, e-
mails and other papers that were not part of a permanent set of 
audit work papers, that we became aware of as a result of Mr. 
Duncan's meeting and actions subsequent to October 23. We think 
regardless of the policy, at best that was an extreme error in 
judgment that we as an organization don't support, don't 
condone and don't encourage and will not stand for.
    Mr. Bilirakis. Mr. Andrews, you said that earlier. Now, all 
right, so you do acknowledge, apparently from what I 
understand, the destruction of e-mails, those sorts of 
documents, but not the permanent or the final audit documents.
    So can those be reproduced? Those that you have----
    Mr. Andrews. The items that have been destroyed?
    Mr. Bilirakis. Yes.
    Mr. Andrews. Let me explain what we're doing and this is 
one of the reasons I think that the investigation takes an 
extensive period of time.
    When we became aware of this, again we asked our legal 
counsel to begin the process to intensively investigate this, 
which means to interview any and everybody associated with it, 
to get an understanding of what took place in terms of the 
destruction and, most importantly perhaps to do everything 
possible to reconstruct those records. And, for example, 
electronic communications, we have been able to recover a 
significant number of those, not all of those, and we're 
continuing to work to do that. So we embarked on the process to 
try to recover everything that is destroyed.
    Now, obviously documents, hard-copy documents that are not 
in an electronic form, that have been shredded, we cannot 
recover those. Electronic documents, we're taking every effort 
to recover those, and that process continues. Now, we have 
recovered many of them, but I don't think we'll be able to 
recover them all.
    Mr. Bilirakis. Mr. Andrews, what I'm trying to get at is, 
you heard my opening statement about lack of credibility and 
that sort of thing. The documents that were used by your firm 
to determine that--to basically--I'm going to use the word 
``hide'' and not; I don't mean that necessarily as bad as its 
sounds--to hide the truth regarding Enron, et cetera, the 
misstatements, the voodoo accounting, if you will, that I 
consider voodoo and the chairman referred to; those documents 
were a part of your audit, your work papers, right?
    Mr. Andrews. Congressman, documents that were part of a 
completed audit process that were determined to be the 
necessary documents that support the conclusions would be part 
of the permanent audit work papers.
    Mr. Bilirakis. And those have not been destroyed?
    Mr. Andrews. Again, to the best of any knowledge at this 
point, we have not determined that any audit work papers, i.e., 
the permanent audit documentation, we have not determined that 
they have been destroyed; but the investigation is in process 
and continuing.
    Mr. Bilirakis. Well, my entire 5 minutes has been used up 
here, and I'm not sure that I've gotten an answer.
    All right, thank you, Mr. Chairman.
    Mr. Greenwood. The Chair thanks the gentleman from Florida 
and recognizes the gentleman from Louisiana, Mr. John, for his 
questions.
    Mr. John. Thank you, Mr. Chairman. My comments revolve 
around where the chairman of the committee was going with his 
opening comments about the time lines and maybe even the 
company policy of Andersen and how they structure their team. 
Your comment to the chairman's question about when Mr. Duncan 
had this meeting on October 23, that neither you or legal 
counsel knew about this meeting or that he was ordering the 
destruction of all these documents. Is that correct?
    Mr. Baskin. Yes, sir. I think that is what I said in my 
opening statement.
    Mr. John. And obviously Arthur Andersen being a very large 
corporation has lots of clients worldwide. Is the model where 
Mr. Duncan is the team leader, the engagement team leader, and 
whereby you put all your faith in an individual to handle a 
client, is that consistent with other clients in the way that 
you do business?
    Mr. Baskin. Congressman, yes, I think that is. We place a 
great deal of responsibility in the hands of our audit 
partners, and it takes a long time to become an audit partner, 
and then that is why we have the high level of responsibility 
left in their hands.
    Mr. John. Okay. So you have other members of your team and 
partners as you call them, that head other of your clients. Do 
they meet on a weekly or daily basis to talk about the way--not 
particularly about their clients, but the way that they have to 
go about following Arthur Andersen's policies such as the 
retention and destruction policy?
    Mr. Baskin. Well, first of all, we have to understand that 
our engagements range in size from very small audits that need 
only perhaps a couple of hundred hours to complete to very, 
very large audits that involve hundreds of people and thousands 
and thousands of hours. So the extent of time the partner 
spends with the staff and what they do varies a great deal, 
depending upon how extensive the engagement is. On a large 
engagement like Enron, there are many partners who are involved 
with one as the engagement leadership responsibility.
    As far as communicating policies, we have many ways of 
doing that, and we rely a great deal on training. We have an 
internal Web site which provides access to our policies. We 
distribute our policies through CDs and DVD ROMs that people 
can put in their computers.
    Mr. John. Well, I guess I'm not satisfied, and I don't 
think the chairman was satisfied or any members have been 
satisfied with your answer to--from the 18 days, from October 
23 of when this meeting occurred and documents started to be 
destroyed, till--what is it?--November 9 when Ms. Temple sends 
Mr. Duncan a voice mail and told him to preserve all those 
documents. It is perplexing to me that no one in the highest 
management of Arthur Andersen had any indication of this 
meeting or what was going on and didn't step up to the plate 
and say, we on October 20--I'm sorry, October 22, the SEC has 
had an informal inquiry. This is not good. This is not 
consistent with any professional accounting practices, and I 
would like for you to comment on that, because I think there is 
an 18-day problem that I'm not satisfied with, and we need to 
get down to who knew and why and why wasn't it stopped until 
that point in time.
    Mr. Andrews. Congressman, in terms of that period of time 
and what transpired in that period of time, as I tried to 
indicate earlier, I agree that the action that took place on 
October 23 and the subsequent elimination of e-mails and 
destruction of documents is an action that is totally 
inappropriate, and I believe the responsibility, as our policy 
states, lies with the engagement partner to have the judgment 
to know how to exercise within that time period, given the 
things that were occurring. And that judgment may be the 
judgment to not destroy documents. It may be the judgment to 
seek consultation to determine what should be done. What took 
place was a conclusion to eliminate e-mails, to destroy 
significant amounts of documents without consultation, to the 
best of my knowledge, with others, and that activity is totally 
inappropriate, and we do not condone that, and we do not 
believe our personnel would do those sorts of things. That's 
what we find was inappropriate, and that's why we've taken what 
action we've taken to date and we'll continue to review the 
situation and take appropriate action against anyone else.
    Mr. John. I'm out of time, but I need to end on this 
comment. And I respect and I understand--and that is the 
position you should take--but why 18 days? That is a long 
period of time. If there was a meeting about the destruction of 
documents taking place, it just seems to me that someone else 
knew that this meeting took place and someone higher up in 
management should have invoked that policy before November 9, 
2001. That's just me, and I'm out of time.
    Mr. Greenwood. The Chair thanks the gentleman, and 
recognizes for inquiry the gentleman from Florida, Mr. Stearns.
    Mr. Stearns. Thank you, Mr. Chairman. Ms. Temple, the 
questions I'm going to ask you, I'd just like a yes or no 
answer. If you'd be so kind. On August 15 Sharon Watkins wrote 
a--she was vice president of Enron, a former employee of Arthur 
Andersen. She wrote a memo to the President Kenneth Lay of 
Enron, in which she said she was incredibly nervous that we 
will implode in a wave of accounting scandals. Did you know of 
this memo before October 23? Just yes or no.
    Ms. Temple. To the best of my recollection, I don't----
    Mr. Stearns. Just yes or no.
    Ms. Temple. [continuing] recall seeing a letter from Ms. 
Watkins.
    Mr. Stearns. So you're saying no you did not know about 
Sharon Watkins' letter on October 23? You knew nothing about 
it? Is that your answer, that, no----
    Ms. Temple. I was aware that she had made allegations. I 
don't recall if I saw a document.
    Mr. Stearns. So you're saying yes you knew of her 
allegations. Is that correct?
    Ms. Temple. I was informed that she had made allegations, 
yes. I don't recall if I saw a document.
    Mr. Stearns. So the answer to my question is, yes, you knew 
about it. Is that correct? Yes, you knew about----
    Ms. Temple. I was aware that she had made allegations. I 
don't recall if I saw the document.
    Mr. Stearns. Okay. Now, on October 15, Vinson & Elkins was 
hired to look at this memo, and they indicated that there are 
serious risks of adverse publicity and litigation. Did you know 
about the Vinson & Elkins final conclusions before October 23? 
Yes or no. Did you know about this study before October 23?
    Ms. Temple. Yes. I believe I received a copy of that report 
before October 23.
    Mr. Stearns. So you knew about Sharon Watkins. You knew 
about this one. Okay the questions I have I'd like you to 
answer just yes or no relative to October 23. Did you know that 
Enron had taken $1 billion charge due to an accounting error on 
the Raptor transaction? Yes or no. October 23. By October 23 
did you know that Enron had taken a billion dollar charge due 
to an accounting error on the Raptor transaction?
    Ms. Temple. To the best of my recollection, no--I knew that 
they had taken charges, but I did not----
    Mr. Stearns. That is a yes.
    Ms. Temple. [continuing] know about a billion dollar charge 
at that time.
    Mr. Stearns. You knew that--okay. Second, that the SEC had 
begun an informal inquiry into Enron related to a party 
transaction. Did you know that the SEC had begun an informal 
inquiry before October 23?
    Ms. Temple. By October 23, I knew that, yes.
    Mr. Stearns. Yes. Okay. That your own Houston and Chicago 
offices were disagreeing about the proper accounting and what 
in fact Andersen had signed off on with respect to one series 
of Enron transactions? Yes or no.
    Ms. Temple. Yes.
    Mr. Stearns. That a class action lawsuit had been filed 
against Enron with respect to these transactions, as well as 
other shareholder suits? Yes or no.
    Ms. Temple. To the best of my recollection, I recall an 
announcement on the 23 of a class action shareholder lawsuit--
--
    Mr. Stearns. So that is a yes?
    Ms. Temple. [continuing] against Enron. Yes.
    Mr. Stearns. That Andersen was assisting Enron in its 
response to the SEC, did you know that?
    Ms. Temple. Yes. On October 23, I have notes of a call with 
the engagement partner and senior management where the 
engagement partner reported to us that----
    Mr. Stearns. So that is a yes?
    Ms. Temple. [continuing] the team was assisting. Yes.
    Mr. Stearns. Okay. In light of your comments and your 
retention policy statements earlier, why did you wait until the 
November 9 to tell the Enron audit team to stop destroying 
documents, in light of all these yeses you said earlier?
    Ms. Temple. On October 23, according to my notes, Mr. 
Duncan reported to us the AA was trying to gather all documents 
regarding----
    Mr. Stearns. Can I interrupt you, Ms. Temple? The question 
is based upon all this prior information, Sherron Watkins, the 
Vinson & Elkins study, all of the previous things: You knew 
about the Raptor write-offs, you said, oh, I didn't know a 
billion dollars, but I knew about the Raptor transaction. You 
knew that the SEC had started an inquiry. Based upon all of 
that, why did you wait till November 9 to tell the Enron audit 
team?
    Ms. Temple. According to my notes on October 23 Mr. Duncan 
assured us that the team was trying to gather all documents----
    Mr. Stearns. I don't think you've answered the question, in 
all due--what--let me ask you this. What did you believe that 
Mr. Duncan's representation--no. Why did you believe that Mr. 
Duncan's representation that he was gathering the relevant 
documentation on these transactions, which clearly for purposes 
of internal review as to the substance and completeness of the 
audit trail meant that he was also gathering up everyone else's 
notes, e-mails, voice mails, drafts and other nonwork paper 
documents for purposes of preservation for litigation? Was that 
your job, was that his job, or was that your job?
    Ms. Temple. The engagement partner's primary responsibility 
for document retention--and he assured us, according to my 
notes, that they were gathering all documents regarding 
transactions from around the world. That was the assurance that 
the documents were being gathered and preserved.
    Mr. Stearns. Don't you think Mr. Duncan was gathering work 
papers?
    Ms. Temple. According to my notes, he said all documents.
    Ms. DeGette. Would the gentleman yield?
    Mr. Stearns. I'd be glad to yield.
    Ms. DeGette. Do your notes indicate that the documents were 
gathered and preserved or simply gathered?
    Ms. Temple. The notes state, AA trying to gather all docs, 
re transactions, from around the world. I understood that to be 
gathering the relevant documentation about all of the 
transactions from all around the world to have it in one place 
to have it available.
    Ms. DeGette. Now, do you recall discussing----
    Mr. Greenwood. The time of the gentleman from Florida has 
expired.
    Ms. DeGette. I'd ask unanimous consent to grant the 
gentleman 1 additional minute so I can ask a follow-up 
question. Thank you.
    Mr. Greenwood. We will be doing a second round. The 
gentlelady will be granted an additional minute.
    Mr. Stearns. Mr. Chairman, I ask unanimous consent to ask 
for an additional 1 minute, and it's not just for me, but I 
think we are on to a line of reasoning, that at this point if 
we leave it, we lose an opportunity for this committee--this 
subcommittee. So----
    Mr. Greenwood. Fair enough. Without objection, the 
gentleman from Florida will be granted an additional 2 minutes, 
some of which he may yield to the gentlelady from Colorado if 
he so chooses.
    Mr. Stearns. I'll yield to the gentlelady from Colorado, 
and also I understand the chairman here also has a question. So 
I yield part of my time to you.
    Ms. DeGette. Thank you so much for your comity.
    Do you recall a conversation with Mr. Duncan in which he 
assured you he was gathering the documents to preserve them? Do 
you recall specifically having that conversation, according to 
your notes?
    Ms. Temple. I don't recall the specific words, but I do 
recall that we had a group conference call on October 23, and I 
have these notes from that call.
    Ms. DeGette. And the notes don't say anything about 
preservation, do they?
    Ms. DeGette. The notes----
    Ms. DeGette. Yes or no?
    Ms. Temple. The notes do not have the word ``preservation'' 
in them.
    Ms. DeGette. And on October 12 you had just sent a memo to 
Mr. Duncan and his group, advising them of the Arthur Andersen 
document retention and destruction policy which involved 
destroying all of the notes and backup documents and so on, 
correct?
    Ms. Temple. No. Actually, I sent a reference to the policy 
to the practice director in Houston.
    Ms. DeGette. So you never sent that to Mr. Duncan?
    Ms. Temple. I did not send it personally to Mr. Duncan.
    Ms. DeGette. Mr. Odom had that, correct? Mr. Odom, did you 
have that?
    Ms. Temple. The Houston practice director, based on several 
factors----
    Ms. DeGette. Just----
    Ms. Temple. [continuing] at that time----
    Ms. DeGette. In this October 23 phone call, you don't 
recall specifically and your notes do not reflect you telling 
Mr. Duncan to retain records, do they? Yes or no.
    Ms. Temple. I don't see that----
    Ms. DeGette. Yes or no, ma'am.
    Ms. Temple. [continuing] in my notes, no.
    Ms. DeGette. Thank you.
    I yield back.
    Chairman Tauzin. Would the gentleman yield?
    Mr. Stearns. I'll be glad to yield to the chairman.
    Chairman Tauzin. I'll be real quick.
    Ms. Temple, if you received this e-mail from Mr. Duncan, 
indicating he was collecting all of these documents, and 
assumed that he was preserving them, why did you feel it 
necessary on November 9 to leave a voice mail with Mr. Duncan, 
directing him to preserve those documents because of the 
receipt of the SEC subpoena? If he was preserving them already, 
why on Earth did you feel it necessary to advise him to 
preserve them on November 9?
    Ms. Temple. It is our firm practice to notify the 
engagement team when the legal group receives a subpoena. I 
believe it had been received in the general counsel's office, 
and I promptly notified the engagement partner and reminded 
about the need to--at this point in time, we'll have to collect 
the documents for production.
    Chairman Tauzin. Well, but you understand why common sense 
gets a little lost here. If you're in a position where you know 
that the retention policy also means destruction, you knew 
that, didn't you?
    Ms. Temple. There are aspects of the destruction guidelines 
in that policy, yes.
    Chairman Tauzin. So you know that the retention policy, as 
long as it's operating, permits Mr. Duncan and however many 
people he has working for him to destroy documents? You get a 
memo from him saying, I'm gathering them all up; and you tell 
us today that you assumed that meant that he was gathering them 
up to preserve them for litigation, not to destroy them.
    Why would you even bother to say, by the way, on November 
9, quit destroying documents? If you just got an SEC subpoena, 
why would you do that?
    Ms. Temple. The legal group notifies the engagement partner 
and engagement team when subpoenas are served. It was received 
by the legal group, and I felt it was appropriate to follow the 
firm protocol to notify the engagement partner.
    Chairman Tauzin. Now, but you see we also have the memo on 
November 10, and I'm going to read to you from it. It says, the 
first thing we must do in preparing to respond to these 
subpoenas and lawsuits is to take all necessary steps to 
preserve all of the documents and other materials that we may 
have relating to claims that are being filed.
    Now, if that was already being done, if you had received a 
notice from Mr. Duncan that he's gathering them all up to 
preserve them, that was your conclusion, why would you say that 
the first thing we have to do now, now that the subpoena has 
arrived, is start preserving these things?
    Do you see, common sense, Ms. Temple--common sense tells me 
that destruction was going on up until this time when the 
subpoena arrived and that until you said ``preserve them,'' 
they may well have been gathered up for destruction, and that 
somebody should have known that. And was that somebody you?
    Ms. Temple. I never counseled any destruction or shredding 
of documents. And I only wish that someone had raised the 
question so that we could have consulted and addressed the 
situation.
    Chairman Tauzin. I thank the gentleman.
    Mr. Stearns. Mr. Chairman, I know my time is out. The 
question I had is for Mr. Baskin and Mr. Andrews.
    Did you ever call Mr. Duncan in and say, Mr. Duncan, we're 
thinking about letting you go; we're thinking about getting 
your version of the story first before we let you go? Did you 
give him that courtesy to say, Mr. Duncan, tell us your version 
before we make our version? And why didn't you bring him in and 
just ask him questions like that, so that we could better 
understand your actions?
    Mr. Andrews. Congressman, as we have our legal counsel 
Davis, Polk doing the investigation for us, it's my 
understanding that they have had multiple interviews with Mr. 
Duncan on this subject, both prior to his being dismissed. So 
we did in fact do what you're suggesting, and it was a very 
appropriate step in the process of investigating it.
    Mr. Stearns. And did he tell you he was ordered to destroy 
these documents?
    Mr. Andrews. My understanding--repeat the question, please.
    Mr. Stearns. Did he tell you, he was told he was to destroy 
these documents?
    Mr. Andrews. My understanding of his interview and 
responses he gave is that he acknowledged--or discussed, 
presented, if you will--what took place on October 23, the 
meeting and the subsequent activity of destroying documents; 
and also indicated that he did not seek advice or counsel and 
was not instructed by someone to do so.
    Mr. Stearns. Did he admit to you that he told other people 
to destroy documents?
    Mr. Andrews. I did not do the interview, so I can't respond 
specifically. My understanding of what took place was, they 
held a team meeting. He was the senior partner in that----
    Mr. Stearns. Mr. Andrews, is a copy of that interview or 
any notes on that available?
    Mr. Andrews. No, sir. I do not have copies of notes, and I 
don't know if there was documentation from the meeting.
    Mr. Greenwood. The time of the gentleman from Florida has 
expired.
    Let me clarify your response, Mr. Andrews. You just 
testified that you are not aware as to the existence of any 
documentation of the interviews of this law firm with Mr. 
Duncan?
    Mr. Andrews. What I'm saying is that our law firm is 
conducting the investigation, and the information I have is as 
a result of what they have, what they have told me from that 
investigation.
    To clarify, I do not have a written report on an 
investigation. The information is in process, and will be 
completed appropriately; and the appropriate results----
    Mr. Greenwood. In the course of that information, did 
anyone from Andersen come forward and say, while these 
interviews are going on, or subsequently, that they directed 
Mr. Duncan to destroy documents? Or that Duncan directed them? 
Excuse me.
    Did anyone indicate that Duncan directed them to destroy 
documents?
    Mr. Andrews. Congressman, I'm not sure exactly what 
instructions Mr. Duncan gave. What I have been told, and it's 
my understanding that a team--Mr. Duncan led a team meeting in 
which instructions were given to apply policy No. 760, which is 
the one in question; and that subsequent activity resulting 
from that meeting led to the destruction of documents, the 
documents we're talking about, not work papers, to the best of 
my knowledge at this time in the investigation, but e-mail and 
other forms of documentation that existed.
    Mr. Greenwood. All right, Mr. Andrews, I'm going to ask you 
to make available to this committee today all of the 
documentation that may exist that documents the interviews with 
Mr. Duncan prior to leading up to his firing.
    Would you make those documents available for us?
    Mr. Andrews. Congressman, I'd have to consult with our 
counsel on that. It's our intention to complete the 
investigation and completely share the conclusions of that 
investigation.
    Mr. Greenwood. Well, this committee will need these 
documents and will subpoena them if necessary.
    The time of the gentleman from Florida expired a long time 
ago, and the gentleman from Illinois, Mr. Rush, is recognized.
    Mr. Rush. Thank you, Mr. Chairman.
    Ms. Temple, according to the notes that we have, you--and 
according to the Martindale-Hubbell Legal Directory, you 
graduated from Harvard Law School with honors. Is that right?
    Ms. Temple. Yes, sir.
    Mr. Rush. And you were a partner at the law firm of Sidley 
& Austin before joining Arthur Andersen's legal department; is 
that right?
    Ms. Temple. Yes, sir.
    Mr. Rush. Can you explain to us, give us some kind of an 
idea what you were--what type of work you were doing at Sidley 
& Austin? I know you were--your specialty is civil litigation, 
professional malpractice and securities litigation, but can you 
give us a further indication of the type of work that you were 
performing at Sidley & Austin?
    Ms. Temple. Yes. I worked primarily on litigation, 
commercial litigation, did some accountants liability 
litigation, represented a law firm in another professional 
circumstance, and did other general commercial litigation for 
both plaintiffs and defendants.
    Mr. Rush. So it would be correct for us to assume that you 
were well versed on ethical considerations as it relates to 
document retention?
    Ms. Temple. I was aware of document retention issues in a 
litigation context, yes.
    Mr. Rush. Okay. And when did you start at Arthur Andersen?
    Ms. Temple. In July of 2000.
    Mr. Rush. July of 2000. And what was your work at Arthur 
Andersen? Prior to being assigned to the Enron clientele and 
cases, what was your work?
    Ms. Temple. My work was on a variety of matters and in 
addition to the Enron matter, continues to follow up a variety 
of matters. Members in the legal group, we work on managing 
with outside counsel litigation against the firm. We counsel 
business people from time to time on various contracts, other 
legal issues, practice issues. And we also help the firm comply 
with subpoenas.
    Mr. Rush. So you consider yourself a top-notch lawyer; is 
that correct?
    Ms. Temple. I don't know. I probably like others to think 
so.
    Mr. Rush. Okay. All right.
    Let me ask you, you were assigned on September 28, 2001, to 
Enron on the Enron-related matters. Is that correct?
    Ms. Temple. I was asked to participate in a conference call 
with some of the business people, including the engagement 
team, shortly before the call occurred on September 28.
    Mr. Rush. Okay. So were you actually assigned to--from your 
superiors at Arthur Andersen to Enron-related matters?
    Ms. Temple. At the time that's not how it was described to 
me. I was just asked to participate on this conference call 
with my supervisor, and as time progressed, I continued to 
consult with the business people on this matter relating to 
Enron.
    Mr. Rush. Okay.
    So did you transition into being the No. 1 person as it 
relates to the document retention matters and the policies and 
that type thing? Did Arthur Andersen rely on you as a part of 
its legal department to inform others about retention matters 
as it related to Enron and other--any other kind of 
corporation?
    Ms. Temple. The way I perceived my role, advising as a 
legal adviser relating to Enron, was to be able to participate 
in conference calls as the engagement team and other business 
people discussed the accounting issue, and to answer questions 
that arose. I consulted--my supervisor participated at times in 
some of those conference calls, and I consulted with him and, 
later on, with outside counsel.
    Mr. Rush. On October 12, you informed Mr. Duncan of--in a 
way that was--that raised some eyebrows and some questions. You 
sent an e-mail--no--to Mr. Odom, stating that it might be 
useful for him to remind the Enron engagement team about--about 
Andersen's document retention and destruction policy to ensure 
compliance with the policy.
    Now, what drove you? What motivated you to inform Mr.--or 
send this e-mail to Mr. Odom?
    Ms. Temple. There were several factors. Leading up to 
October 12, a few questions had been raised in the conference 
calls I participated in about how to appropriately document 
several different matters: one, a current draft of a memo 
describing the firm's conclusion about the right accounting 
method, how to date that document; two, whether we should 
acknowledge in writing in the current document the fact that 
the firm had now concluded that the prior accounting advice in 
the first quarter was correct; three, it also came to our 
attention that the memos, until the first quarter 2001, it did 
not fully reflect and accurately reflect the nature of the 
consultation that the engagement team had had at that time with 
some of the national accounting experts, and so gave advice to 
document the current memos dated currently, make sure they are 
complete and accurate and include all facts and conclusions, 
and also make sure that no prior papers or any prior reporting 
period is changed or deleted and that the national experts 
should create a document dated today that made very clear the 
nature of the facts that they recalled about their consultation 
for the prior period so there would be a clear written record 
of their version of the facts.
    Given these questions that had arisen--and I had consulted 
with my supervisor about providing advice, and others. In part 
of that consultation we referred to the documentation, 
retention and destruction policy for guidance in giving our 
advice; and I thought it was useful----
    Mr. Rush. Ms. Temple----
    Ms. Temple. [continuing] given the confusion, to make sure 
that we were compliant.
    Mr. Rush. What I'm trying to home in on, focus on, is your 
stating that--your words stating that it might be useful for 
him on October 12, it might be useful for him to remind.
    Why weren't you more direct? Why weren't you more forceful 
on October 12?
    Ms. Temple. The way our system works in our firm is that 
the engagement partner has primary responsibility for the 
engagement and documentation, retention and compliance with 
policies; they can consult with the practice directors. And I 
did not have the detailed information about potential other 
issues that were being addressed by the engagement team. I 
thought perhaps the local practice director who's available for 
consultation with the audit team might have a better idea as to 
whether it would be useful.
    Mr. Rush. What changed as of November 9?
    Ms. Temple. I'm sorry, sir?
    Mr. Rush. Where you were more forceful, what changed?
    Ms. Temple. November 9--if you're referring to the November 
10 e-mail and that timeframe, the firm had received the 
subpoena from the Securities and Exchange Commission asking to 
produce all documents, so we sent that----
    Mr. Greenwood. The time of the gentleman from Illinois has 
expired.
    The Chair recognizes the gentleman from North Carolina, Mr. 
Burr.
    Mr. Burr. Thank you, Mr. Chairman.
    Mr. Odom, I feel like you've been neglected, and I'll try 
to----
    Mr. Odom. My feelings are not hurt.
    Mr. Burr. I didn't think they would be.
    Mr. Odom, you play a crucial role in this, if for no other 
reason than there are many meetings that individuals have 
speculated on what the content was that you were involved in; 
and you were aware of Sherron Watkins' September--or excuse me, 
August concerns that she raised not only to Andersen, but also 
to Ken Lay directly, weren't you?
    Mr. Odom. Yes, sir.
    Mr. Burr. And those were conveyed to you, if not directly, 
through a memo from Mr. Hecker, James Hecker from Andersen, 
through a memo to you and to the file?
    Mr. Odom. I was copied on Mr. Hecker's memo, yes, sir.
    Mr. Burr. Is it usual that concerns like that might not be 
shared within the legal team in Andersen?
    Mr. Odom. Concerns like?
    Mr. Burr. The concerns that Ms. Watkins raised, should they 
or were they shared with anybody within the legal team at 
Andersen?
    Mr. Odom. Once Mr. Hecker got the call, the next morning we 
contacted firm-wide legal to inform them of the nature of the 
call Mr. Hecker had gotten the night before.
    Mr. Burr. Now, Ms. Temple, are you in firm-wide legal?
    Ms. Temple. Yes, I am.
    Mr. Burr. And for some reason you're not aware of the 
accusations at that time when you got involved in the Enron--I 
think you said on September 28?
    Ms. Temple. I believe another lawyer was consulted at that 
time, but it did come to my attention, general allegations, 
before October 12.
    Mr. Burr. But on September 28 when you became a part of the 
Enron team for Andersen, you didn't know any of these 
accusations as part of the firm-wide legal team that Ms. 
Watkins had raised?
    Ms. Temple. I did not know about those allegations on 
September 28. About 5 minutes before the conference call 
occurred, I was asked to participate by my supervisor, who also 
participated, and the topic of discussion was a specific 
accounting issue that did not----
    Mr. Burr. When did you become aware of the investigation 
that Vinson & Elkins was currently engaged in by Enron to look 
at these questions?
    Ms. Temple. To the best of my recollection, I believe it 
was during the week of October 8.
    Mr. Burr. Mr. Odom, is there anything that you've read that 
has been credited to Mr. Duncan, either in his formal 
statements that he's made or in his answers to questions by 
this committee that you find to be false?
    Mr. Odom. I have no knowledge of any false statements.
    Mr. Burr. Is there any point that you thought David Duncan 
had diverted from, anything other than what he was instructed 
by individuals within Andersen, as it related to document 
retention?
    Mr. Odom. I don't know what Mr. Duncan did with respect to 
document retention. So I really can't answer that question.
    Mr. Burr. Was there any point where Mr. Duncan asked you, 
or anybody that you might have been knowledgeable of, to 
destroy documents that were pertinent and should have been 
protected?
    Mr. Odom. No, sir.
    Mr. Burr. Ms. Temple, what was your understanding of why 
Andersen hired Davis, Polk?
    Ms. Temple. To the best of my recollection, I understood 
that Davis, Polk was hired as an additional resource for the 
legal group to consult with on ongoing issues.
    Mr. Burr. Was the legal group consulted on the hiring of 
Davis, Polk?
    Ms. Temple. I did not participate in that decision. I was 
informed by my supervisor----
    Mr. Burr. How many other representatives from the legal 
team were involved intricately in the Enron team at that time, 
and which ones were consulted about the hiring of Davis, Polk?
    Ms. Temple. I don't know who was consulted about the 
hiring. I do know that my supervisor told me that the decision 
had been made to retain Davis, Polk.
    Mr. Burr. And when was your first contact with individuals 
at Davis, Polk?
    Ms. Temple. To the best of my recollection, October 16.
    Mr. Burr. Did Davis, Polk have any input into your October 
12 memo as it related to document retention?
    Ms. Temple. As far as I recall, no.
    Mr. Burr. Were there any individuals other than you that 
had input into your October 12 e-mail on document retention?
    Ms. Temple. I don't recall reviewing a draft of the e-mail, 
but I do recall discussing the document retention issues.
    Mr. Burr. Was there an initiative that you started on your 
own or was it suggested to you to put out this e-mail?
    Ms. Temple. No one suggested to me to put out the e-mail.
    Mr. Burr. Did you ever have a conversation relative to that 
e-mail, prior to its distribution, with your direct supervisor?
    Ms. Temple. I don't recall discussing the particular e-
mail. I recall discussing the document retention policy and the 
legal advice we should give on documentation and retention.
    Mr. Burr. On 10/12 when you distributed that e-mail on 
document retention, were you aware at that time of the 
preliminary findings that would be reported on 10/15 from 
Vinson & Elkins as it related to their investigation on a--
stimulated by Enron?
    Ms. Temple. The facts that had been reported to me by the 
engagement team were that Vinson & Elkins had given an oral 
report to the board that there was nothing further that Enron 
needed to do as a result of their investigation.
    Mr. Burr. So you were aware of what the conclusion of their 
investigation was?
    Ms. Temple. That was what was reported to me, yes.
    Mr. Burr. Did that in any way, shape or form shape your 
decision about the fact to send an e-mail about document 
retention on October 12?
    Ms. Temple. I don't recall all the things going on in my 
mind at that particular time. I do recall that I was motivated 
by the fact that questions had been raised about appropriate 
documentation and retention of prior period papers----
    Mr. Burr. Were there any meetings within the legal team 
that talked about the Vinson & Elkins findings that would be 
reported publicly, prior to their report publicly?
    Ms. Temple. I recall generally keeping my supervisor up to 
date on events as they occurred. I don't recall any specific 
discussion of the Vinson & Elkins report.
    Mr. Burr. On October 16 you made a request for--from Mr. 
Odom, Gorgal & Golsby, to delete your name from a press 
statement. What was the reason for that?
    Ms. Temple. Actually, it was a request to delete a 
reference to my name and legal advice that had been provided in 
an internal Arthur Andersen memo that was to go into the audit 
work paper file; and the reasons for that were to avoid 
potential argument later on that the attorney-client privilege 
had been waived, and I made that recommendation after 
consulting with our outside counsel on that point.
    Mr. Greenwood. The time of the gentleman from North 
Carolina has expired.
    Mr. Burr. If the chairman would indulge me for one 
additional question.
    Mr. Greenwood. Without objection, the gentleman from North 
Carolina will be granted an additional minute.
    Mr. Burr. Can you share with us the exchange with your 
outside counsel and specifically the date that that took place?
    Ms. Temple. I believe I had a discussion on October 16 
about appropriate documentation and how it would be good 
practice not to disclose in writing legal advice obtained from 
the legal group so that one cannot argue later that there was a 
waiver of the attorney-client privilege.
    Mr. Burr. Did you counsel with him because you suspected 
that there would be litigation in this case?
    Ms. Temple. No. I sought counsel about appropriate 
documentation. The firm receives hundreds of subpoenas a year, 
and if there's documentation that's going in the work paper 
file, we, as a standard practice, don't like to have the 
auditors document and describe the legal advice, because it 
might be waived.
    Mr. Burr. I would take for granted that the decision to 
hire outside counsel is not something that happens weekly at 
Andersen or many other companies. Clearly, somebody believed 
that a litigation team was needed. That decision was made on 
October 9, which makes at least this committee very interested 
in the meetings that took place, the decisions that one arrived 
at.
    Clearly, after that October 9 date, decisions were made by 
you and you alone as you have stated, to remind individuals of 
the--of the document retention policy. Decisions were made to 
delete the legal staff's names from documents for fear that 
attorney-client privilege would be breached. It leads one to 
believe that there was a great understanding that some type of 
litigation was, if not imminent, certainly in the future.
    You're a lawyer. You're a seasoned person. At what point 
did you feel that litigation was in fact a reality?
    Ms. Temple. To the best of my memory, I don't recall making 
a definite decision that, yes, we're definitely going to be 
sued here----
    Mr. Burr. You got a pretty good sign when they hired 
outside counsel, didn't you?
    Mr. Greenwood. The time of the gentleman has long expired.
    Ms. Temple. I knew there was a possibility, yes.
    Mr. Greenwood. The Chair recognizes the gentleman from 
Kentucky for 5 minutes.
    Mr. Whitfield. Ms. Temple, you indicated to a number of 
people that your memo of October 12 regarding the retention 
policy was precipitated by the fact that there had been some 
incorrect accounting advice given regarding the first quarter 
of Enron's financial statements; and in fact, that they were 
not adequately reflected and so forth. Is that correct?
    Ms. Temple. There had not been a conclusion that the first 
quarter financial statements were accurate. It was incorrect 
accounting advice, and to my understanding, the firm was 
working diligently to determine what the appropriate accounting 
advice should be.
    Mr. Whitfield. But there was incorrect accounting advice 
given, correct?
    Ms. Temple. That was my understanding.
    Mr. Whitfield. Okay. Now, prior to October 12, did you have 
any conference calls relating to that issue with Mr. Odom or 
Mr. Duncan prior to issuing that October 12 memo?
    Ms. Temple. As I recall, I believe there were a couple 
group conference calls where the engagement team was consulting 
with other practice directors within their organization about 
this accounting issue, and I believe--I don't recall all of the 
participants, but I believe Mr. Duncan and Mr. Odom 
participated.
    Mr. Whitfield. Is that right, Mr. Odom? Did you participate 
in some conference calls with her prior to October 12 about 
that issue?
    Mr. Odom. Yes, sir.
    Mr. Whitfield. And is it true that you recall someone in 
those calls asking the engagement team how they were with 
respect to compliance with the retention policy?
    Mr. Odom. I believe I recall the question of--I don't think 
we called it necessarily the ``retention policy.'' We called it 
our ``document policy,'' whatever the----
    Mr. Whitfield. Our document--yeah. So that was mentioned. 
And did you take any action as a result of that?
    Mr. Odom. I may in fact have gone through and seen if I had 
old drafts in my office that were not part of the current work, 
and I may have also looked at some old e-mails that I'd been 
delinquent in deleting. I do not maintain Enron files.
    Mr. Whitfield. So you may have, or you did?
    Mr. Odom. I believe I did, but I couldn't swear to it.
    Mr. Whitfield. Okay. So even prior to that, you at least 
went through some of your files and deleted some of them?
    Mr. Odom. I believe I did, yes, sir.
    Mr. Whitfield. So her e-mail on the 12th, how did you 
interpret that e-mail? Did you interpret that she was 
suggesting that documents be destroyed or removed?
    Mr. Odom. I took it that she was reminding--we needed to 
remind the engagement team as to what our policies were.
    Mr. Whitfield. Okay. Now, on October 15, Mr. Duncan wrote 
in his file that he was quite concerned that a press release 
from Enron talking about their financial statement was going to 
include nonrecurring charges; and he was quite concerned about 
nonrecurring, using that terminology, because he said he felt 
like that was misleading--that that would be misleading to the 
public.
    And he also said that he was going to talk to Mr. Rick 
Causey. Who is Rick Causey?
    Mr. Odom. You're asking me?
    Mr. Whitfield. Yeah.
    Mr. Odom. Mr. Causey is the chief accounting officer at 
Enron.
    Mr. Whitfield. So, trying to read Mr. Duncan's mind here, 
it seems to me that since you all were having conference calls 
about inadequate advice given on the Enron account in the first 
quarter, and now in a press release they're saying we have 
these losses because of nonrecurring charges, and he thinks 
that that is not accurate.
    And then he goes on to say that Mr. Causey basically came 
back and said, well, don't be concerned about it or don't worry 
about it or something to that effect. Are you aware of that?
    Mr. Odom. What tab are you in, sir, so I can read it?
    Mr. Whitfield. Tab--I think it's 7. He says that--the 
release was issued early Tuesday, October 16, which essentially 
was the original--anyway, Rick said, I've raised the issue 
internally and that the press release had been thoroughly 
reviewed by our legal team, and so despite Mr. Duncan's concern 
that it was misleading, the internal legal team review decided 
evidently to let it go. Is that your----
    Mr. Odom. I believe that's correct.
    Mr. Whitfield. Then Nancy Temple wrote a memo to Mr. Duncan 
on the 16th, which is 1 day after his memo in which he's 
concerned about this misleading recurring charges statement, 
and she says, Dave, ``Here are a few suggested comments.'' I 
recommend deleting reference to consultation with the legal 
group and deleting my name on the memo. I also suggest deleting 
language that might suggest we have concluded the release is 
misleading.
    Why did you write that memo, Ms. Temple?
    Ms. Temple. I wrote that after reviewing the draft and 
consulting with our outside legal counsel. First----
    Mr. Whitfield. Outside. Which outside?
    Ms. Temple. Davis, Polk, the comment regarding referencing 
legal advice. Again, it's standard practice and consistent with 
the advice from outside counsel that the auditors should not 
describe the nature of the legal advice in their audit 
documentation, because it might be arguably a waiver of 
attorney-client privilege later on; and Davis, Polk agreed with 
that, and----
    Mr. Whitfield. If Mr. Duncan was concerned about misleading 
the public with this nonrecurring charge, why did you suggest 
deleting that? Because it might suggest we have concluded the 
release is a mistake?
    Ms. Temple. There's only one sentence they suggested 
deleting for two reasons, because it was inaccurate factually 
and----
    Mr. Whitfield. It was inaccurate factually? How was it 
inaccurate?
    Ms. Temple. The sentence refers to enforcement actions 
undertaken against companies by the SEC in a case where they 
believe the presentation was materially misleading. I have been 
aware of only one enforcement action, and the circumstances 
were different than the case involving Enron. I had not 
reviewed an entire draft press release of Enron, but I knew 
that Mr. Duncan and others within Andersen had, and provided 
comments, but under the professional standards, the press 
release is the responsibility of the company, not of the 
auditor. The auditor was trying to be helpful, and it was my 
understanding, based on the discussions with people within 
Andersen, that Andersen had not concluded that the press 
release was misleading.
    Mr. Whitfield. But the person in charge of the Enron 
account was quite concerned about it. And yet subsequently, as 
it turns out, he probably was correct. It was misleading.
    Mr. Greenwood. The time of the gentleman has expired.
    Mr. Whitfield. Very last question.
    In this memo you went further to say, ``I would consult 
further within the legal group as to whether we should do 
anything more to protect ourselves from potential Section 10A 
issues.'' What are 10A issues?
    Ms. Temple. That is a reference to a provision in the 
Federal securities laws that imposes certain obligations on 
auditors in certain circumstances. And as an extra precaution, 
I sent these documents to Davis, Polk and asked them to review 
them to see if they had any suggested advice for additional 
steps that Arthur Andersen should take in these circumstances. 
And the advice was, no, we were doing the right thing.
    Mr. Greenwood. The time of the gentleman from Kentucky has 
expired.
    The Chair recognizes the gentleman from Texas, Mr. Green.
    Mr. Green. Thank you, Mr. Chairman. And I appreciate the 
courtesy of the Chair in allowing me--obviously this is not the 
first time I have asked to be waited on with the oversight and 
investigation on other issues. I appreciate the courtesies in 
the past and particularly today.
    Representing a district in Houston, you can imagine the 
nationwide publicity when you see this current week's Newsweek 
about burned and greedy execs, and clueless accountants left 
Enron bankrupt and little guys in the lurch, how it affected 
investors around the country.
    But when you are from Houston and you have a district that 
not only had employees but also people who placed their trust 
in Enron for 16 years, and also in Arthur Andersen who is an 
88-year-old company or partnership, in that trust.
    Enron was such an integral part of our community, obviously 
employing, you know, thousands of people and individuals 
investing in it, but our arts community, our medical community, 
even our baseball stadium has their name currently. And you can 
see the frustration.
    And that is why I guess there are 11 committees in Congress 
looking at it. And the Justice Department.
    Of course, I am mildly disappointed. It seemed like this 
week not only Arthur Andersen's shredding of documents, but 
Enron doing it up until the civil lawyers found out, and 
hopefully the Justice Department would be more aggressive as 
the criminal prosecution I think it would be--much more than 
the civil lawyers who are filing the lawsuits. But maybe that 
has gotten their attention.
    Let me ask some questions, though, and follow up on all of 
my colleagues who have done really good in trying to bring out 
some of the facts of what happened leading up to Ms. Temple's 
memo.
    October 9 was when the firm decided to retain outside 
counsel. Mr. Baskin, would that----
    Mr. Andrews. That is correct.
    Mr. Green. How long did it take? Did you interview other 
firms, or were there--was the decision made to retain outside 
counsel prior to October 9?
    Mr. Andrews. Congressman, I wasn't directly involved in 
hiring outside counsel. My understanding is we--we engaged them 
on October 9, and that they commenced work around October 1.
    Mr. Green. But, the decision was made to retain outside 
counsel prior to October 9. Do you have any idea of the 
timeframe on the decision looking at Arthur Andersen for that?
    Mr. Andrews. My understanding is we made the decision and 
engaged them on October 9.
    Mr. Green. So it was a decision and so you hired them. So 
there weren't any other firms that were considered?
    Mr. Andrews. I don't know.
    Mr. Green. Okay. And you have no idea when the search began 
for another outside counsel? I assume that Arthur Andersen has 
a lot of outside counsel that they have the opportunities to 
retain.
    Mr. Andrews. Congressman, that is right. We do have any 
number of other firms engaged on various other matters.
    Mr. Green. And I guess, to sum up all of the questions, 
people are wondering, and I am glad that the testimony brought 
out today that Ms. Watkins, who is a former Arthur Andersen--
was she a partner in Arthur Andersen before she moved to Enron?
    Mr. Odom. No, sir, she was not.
    Mr. Green. But she was an employee of Arthur Andersen and 
then moved to Enron?
    Mr. Odom. I believe that is correct. Well, actually she 
left Arthur Andersen some years ago and went somewhere else 
before she went to Enron, is my understanding.
    Mr. Green. And she sent--not only in her current job, but 
she talked to Mr. Hecker. On testimony you just said that you 
were aware of Mr. Hecker's memo to file around the time that he 
did it in August 21?
    Mr. Odom. Yes, sir.
    Mr. Green. Did that make it up just past the Gulf Coast 
Region of Arthur Andersen?
    Mr. Odom. Yes, sir.
    Mr. Green. So I guess, as a lawyer, then Arthur Andersen 
had somewhat constructive notice, even though the subpoena 
didn't get there until November, that there was possible 
litigation and maybe even criminal activity?
    Mr. Odom. I am not a lawyer, Mr. Green.
    Mr. Green. That is why you have legal counsel from--with 
Arthur Andersen, but also the ability to hire outside counsel.
    But on August 21, the memo to the--to the Arthur Andersen-
Enron audit team, to the file and to you, and so the 
partnership was aware of the concerns of Ms. Watkins in late 
August--August 21, 22?
    Mr. Odom. Yes, sir.
    Mr. Green. And so the decision then from August 21 to 
October 9, was--you know, 7 weeks to do that--to decide on 
hiring outside counsel, but the constructive notice on that was 
there was potential litigation; and I also--as a lawyer, I 
understand that there is always potential litigation, 
particularly when are you dealing with a company like this.
    And why would there be the necessity for sending a memo on 
October 12, reiterating Arthur Andersen's policies, when 
constructive notice may have been given in August, but actually 
you didn't respond until the subpoena, on not destroying 
possible evidence?
    Ms. Temple, was there some other reason for the October 
12--because, granted, you may not have had knowledge, but 
Arthur Andersen as a partnership had knowledge in late August, 
and yet in October, after the stock continued to go down, and 
the company was imploding, there was notice to the local 
office.
    Ms. Temple. I can tell you, sir, the facts, as best I 
recall them, leading up to October 12.
    I did learn that this employee had made allegations. I also 
learned that the legal group within Arthur Andersen had been 
consulted. I consulted and conferred with that lawyer. I 
learned that Arthur Andersen encouraged this employee to raise 
the allegations within the highest levels of the Enron 
organization, and that the Arthur Andersen engagement team had 
assured the legal group and others that they had followed up on 
the allegations by addressing them with the general counsel of 
Enron and learned that Enron had engaged an outside law firm to 
conduct an independent investigation.
    I learned that the auditors had obtained information about 
the nature of the allegations, reviewed that information, and 
reported to senior people within the firm and the legal group 
that they had reviewed carefully during their audit work the 
accounting for transactions referenced in the allegations, and 
that they followed up and learned that the law firm had 
reported that the company did not need to take any further 
action.
    So those were the circumstances.
    Mr. Green. That was the middle of October?
    Ms. Temple. That I knew of by October 12.
    Mr. Green. Okay. So before October 12 you were aware of Ms. 
Watkin's memo?
    Ms. Temple. I don't recall if I saw the memo that Ms. 
Watkin's wrote. I do recall knowing that she had made 
allegations.
    Mr. Green. And you don't have a timeframe before you sent 
the memorandum on the--reiterating Arthur Andersen's policy on 
the destruction of documents?
    Ms. Temple. To the best of my recollection, I learned about 
all of the facts that I just described during the week of 
October 8.
    Mr. Greenwood. The time of the gentleman from Texas has 
expired.
    The Chair recognizes the gentleman from California, Mr. 
Waxman for 5 minutes.
    Mr. Waxman. Thank you very much, Mr. Chairman.
    One of the great mysteries surrounding the collapse of 
Enron is the identity of the secret partners with whom Enron 
engaged in various complicated and undisclosed financial 
transactions. These partnerships allowed Enron to move debt off 
its balance sheet. No one knows for sure how many partnerships 
there were, but some press reports have said there could have 
been hundreds or even thousands of them. These secret 
partnerships appeared to be extraordinarily lucrative for the 
partners.
    As the Washington Post recently reported, the secret 
partnerships were set up in a way that guaranteed that the 
secret partners would not be at risk if the ventures failed. 
Andrew Fastow, the former Enron official who participated in 
some of the partnerships, reportedly made $30 million from his 
role in these partnerships.
    I am concerned that the document destruction that went on 
at Arthur Andersen and at Enron may affect our ability to learn 
who these secret partners were. In fact, it is possible that 
the document destruction may be intended to cover up the 
details of these partnerships, including the identity of these 
secret partners.
    We know from the press accounts that some of the documents 
shredded by Enron have the names of the secret partnerships 
such as Jedi clearly visible on them. I would like to ask 
whether any one of you at the table knew that Arthur Andersen 
knew of the identity of the secret partners.
    Mr. Andrews? Mr. Odom?
    Mr. Odom. I will try. On the LJM 2 transactions, which are 
the large funds that Mr. Fastow raised, there exists a private 
placement memorandum, I think it is 144A--is that--am I saying 
that right?
    144A. It is a private placement memorandum, which I think 
exists, that I believe has the names of the people who 
subscribed to that partnership.
    Mr. Waxman. Is that document intact or has it been 
shredded?
    Mr. Odom. That is an Enron document.
    Mr. Waxman. Do you know if any of the documents destroyed 
at Andersen related to these secret partnerships?
    Mr. Odom. I have no knowledge.
    Mr. Waxman. Do you know whether any of the documents 
destroyed at Enron related to those secret partnerships at 
Enron?
    Mr. Odom. I have no knowledge.
    Mr. Waxman. I am assuming that if anybody else at the 
table----
    Mr. Andrews. No, I have no knowledge of the Enron 
activities.
    Mr. Waxman. How about of the Arthur Andersen activities?
    Mr. Andrews. As the documents that I have discussed, 
Congressman, that we believe were destroyed were not permanent 
audit work papers, but memos and documents, paper documents and 
e-mails, in this--that were destroyed in that late October 
period, the ones that we can recover, which were some of the 
electronic documents, we will obviously, when the investigation 
is done, know the content of those and be able to obviously 
answer that question.
    Documents that were shredded or destroyed, we cannot 
address what was in those items or in those papers, as they 
were shredded. But we are making every effort to recover every 
document that was destroyed in our organization. As we said, we 
certainly do not condone that and will make every attempt to 
recover it so that the record is there to investigate for us, 
for you, for the SEC, and for the Department of Justice.
    Mr. Waxman. Well, there are many Members of Congress who 
would like to know about who those secret partners were. Can 
any of you give us information or direction about how to get 
this information, aside from what you have already indicated? 
Whom should we call before the committee? What documents should 
we subpoena to learn the identity?
    Mr. Andrews. Well, Congressman, I think the investigations 
are pursuing, whether it be the SEC, the Department of Justice, 
or Congress or ourselves, looking at all information that is 
available.
    Now, most of the documentation, the original documentation 
around partnerships or any other source documentation like that 
would first and foremost be the documentation of the company. 
We, as auditors, do not create the documentation. We review 
those records. So the best source of the information that you 
are referring to, of course, would be at the company itself.
    Now, when we do our audit, we do review items within that 
audit. To the extent we need documentation to support the 
audit, we do retain those in our audit work papers. We are and 
will continue to make our documentation that we have, including 
everything we recover, available to all appropriate 
investigating bodies. So anything that we have will be 
available appropriately for the investigation, including 
anything we can recover from the e-mails that were destroyed in 
that--or eliminated in that late October period.
    Mr. Greenwood. The time of the gentleman from California 
has expired.
    Mr. Waxman. If I can ask this one point: Will you be 
submitting to this committee that information when you have it?
    Mr. Andrews. Congressman, we will cooperate fully with this 
committee, as I think we have to date. When we complete our 
investigation, we will certainly share with you the conclusions 
of our investigation, including the subsequent oversight of 
that by former Senator Danforth.
    Mr. Greenwood. The Chair recognizes the gentleman from 
Massachusetts, Mr. Markey.
    Chairman Tauzin. Before the Chair does that, can I clarify 
something? Just 30 seconds.
    I want to inform the gentleman and all members that our 
original request for documents from Enron covers the requests 
for knowledge about the partnerships. And that document request 
is in the process of being complied with. So we don't have it 
all yet, but we obviously are going to share it with all 
members and staff when we have it.
    Mr. Greenwood. The Chair yields 5 minutes to the gentleman 
from Massachusetts, Mr. Markey.
    Mr. Markey. Thank you, Mr. Chairman, very much.
    Ms. Temple, when you sent the October 12 memo, you were 
really sending it because you were concerned that Andersen 
might be sued, either by the SEC or by Enron investors, weren't 
you?
    Ms. Temple. No, I don't recall that being in my mind at the 
time. I was concerned about making sure that we had accurate 
and complete documentation.
    Mr. Markey. Mr. Joseph Berardino on Meet the Press on 
Sunday said the policy of Andersen is not to shred documents, 
not to eliminate documents, if you have a reasonable basis to 
anticipate an investigation. By October 12 you already know 
there is a reasonable expectation that there will be 
litigation.
    Now, Mr. Odom, I see that on October 12 you forwarded Ms. 
Temple's e-mail on to David Duncan, the Andersen partner in 
charge of the Enron account, with the notation, ``more help.''
    Now, can you tell us just what did you mean when you 
referred to this memorandum as ``more help''? How is an order 
to start shredding helpful to you, especially on October 12?
    Mr. Odom. I was actually being facetious, Congressman 
Markey. What I was referring to is the fact that all of us knew 
where our document retention policy was, yet we had gotten a 
note attached to it, with a doc link attached to it. So it was 
really just a reminder. But it was not something that was----
    Mr. Markey. On October 12, ``more help'' is just being 
facetious?
    Mr. Odom. Yes.
    Mr. Markey. Now, Ms. Temple, now just 4 days after you sent 
the ``12, 2001, start shredding the documents'' memorandum to 
Mr. Odom, I see that you sent an October 16 e-mail to David 
Duncan commenting on a draft memo he had prepared, expressing 
concerns about a press release that Enron had put out regarding 
third quarter 2001 results. In this e-mail you recommended 
deleting any reference to consultation with the legal group and 
deleting your name from the memo.
    You have acknowledged that you were concerned that being 
mentioned in this memo could result in your being named as a 
witness in future litigation. If so, following Mr. Berardino's 
statement, why didn't you direct Mr. Duncan to stop the 
shredding?
    Ms. Temple. Congressman Markey, I did not instruct Mr. 
Duncan to shred documents. In my October 16 e-mail, I did not 
anticipate being a witness in any particular proceeding with 
respect to Enron.
    This is standard advice provided by the legal group.
    Mr. Markey. You said there is no ``particular,'' but Mr. 
Berardino is saying if there is a ``reasonable'' basis to 
anticipate an investigation. At this point, don't you have a 
reasonable expectation?
    Ms. Temple. As I recall, it was a possibility. But I don't 
recall any discussion of any reasonable anticipation of 
litigation or making that conclusion.
    Mr. Markey. So you were also concerned that Mr. Duncan's 
draft would be read as a suggestion that Andersen viewed the 
Enron press release as being misleading to investors, weren't 
you? And if so, why didn't you order the shredding to stop if 
that was your concern?
    Ms. Temple. Congressman, I was not aware of any shredding 
activities. Based on my discussions with Mr. Duncan and others 
and our outside counsel----
    Mr. Markey. Your memo was interpreted, as you know, as a 
shredding order. That is what began immediately at Andersen in 
Houston.
    Ms. Temple. I don't know what actually happened, what the 
facts are.
    Mr. Markey. So you were also worried that Andersen would be 
required to comply with the financial fraud reporting 
requirements of Section 10A of the Securities Exchange Act, the 
Wyden-Dingell-Markey amendment that requires accountants to 
immediately report evidence of financial fraud to senior 
management, the board; and if they take no action within 5 
days, to report the fraud to the SEC. You make that clear.
    If so, why didn't you order the shredding to stop?
    Ms. Temple. Congressman, there was no conclusion that there 
was any financial fraud. In fact, there was a conclusion that 
there was no misleading statement. After consultation with 
others in the firm and Davis, Polk, I was being careful in 
asking Davis, Polk to look at all angles and all issues and 
advise us. And the conclusion was there were no further steps 
to take.
    Mr. Markey. Well, let's move to October 17. On October 17, 
the SEC opens an informal inquiry into Enron's dealings, and 
over the next several days numerous lawsuits are filed against 
Enron. The document shredding continues all through this period 
to November 9.
    Why didn't you order the shredding to stop then?
    Ms. Temple. I was not aware of any shredding activity.
    Mr. Markey. You had sent a memo on October 12. You knew 
that that was something that could reasonably be interpreted as 
a shredding order.
    Ms. Temple. I intended by October 12 reference to the 
firm's documentation retention policy to focus on the 
documentation issues that had arisen in the retention 
counseling advice I had provided leading up to the 12. I 
specifically told the engagement team to retain the relevant 
documents.
    Mr. Greenwood. The time of the gentleman from Massachusetts 
has expired. Without objection, the gentleman will be granted 
an additional minute.
    Mr. Markey. Is it your legal opinion that Andersen is free 
to shred documents relating to its work with Enron until such 
time as it actually receives a subpoena from the SEC or is 
formally named as a defendant in a class action lawsuit by 
Enron's employees or other investors?
    Ms. Temple. I have not reached that legal opinion.
    Mr. Markey. Was that your view at that time? That is the 
important thing.
    Ms. Temple. I was not asked to reach a legal opinion at any 
particular time. And I was unaware of any shredding activity.
    Mr. Greenwood. The time of the gentleman from Massachusetts 
has expired.
    The Chair recognizes the gentleman from New York, Mr. 
Engel, for 5 minutes.
    Mr. Engel. Thank you very much, Mr. Chairman.
    I am very concerned about the conflicts of interest that 
have to exist when an auditor also serves as a consultant. To 
be blunt, a lucrative consulting contract depends on a 
company's financial health. And in this case I am forced to 
wonder if Andersen was willing to turn a blind eye to 
questionable accounting practices and partnerships so as to 
maintain its other contracts with Enron.
    Some of the financial transactions that Andersen blessed in 
its role as auditor are, at face value, reckless and 
unwarranted. Obviously, Andersen failed in its role as auditor 
to provide investors with proper information. This all brings 
to mind the question of ethics.
    According to the American Institute of Certified Public 
Accountant's Code of Professional Conduct, ``Integrity requires 
a member to be, among other things, honest and candid within 
the constraints of client confidentiality. Service and the 
public trust should not be subordinated to personal gain and 
advantage. Integrity can accommodate the inadvertent error and 
the honest difference of opinion; it cannot accommodate deceit 
or subordination of principle.''
    What we now find before us indicates to me that many, many 
people at Enron and Andersen failed to uphold basic principles 
of honesty and integrity, and with so many unprincipled 
choices, far many more people were hurt as a result.
    It is evident to everyone now that Enron's become one of 
the greatest business scandals in our Nation's history, and 
obviously, if the scandal is as dark, portions--billions of 
dollars of investment retirement have been lost due to the 
dirty dealings of a few greedy people. And as a Congressman, I 
look forward to changing our Nation's laws so as to prevent 
this type of abuse from ever happening again.
    A lot of my colleagues have asked specific questions. I 
wanted to ask some general ones. I would like--let me start 
with Mr. Baskin and say, does providing consulting and auditing 
services set one on a path that will cause professional ethics 
to be challenged? Is it not a conflict of interest to provide 
consulting and auditing services at the same time?
    Mr. Baskin. Congressman, I do not believe that that is 
inherently an ethical problem for auditors.
    Mr. Engel. Well, let me ask you, as managing director of 
the professional standards group of Andersen--you can be 
considered the conscience of the company--what is the Andersen 
code of professional standards, and has it lived up to these 
standards based on everything we now know?
    Mr. Baskin. Our code of professional standards in the 
United States is the AICPA standards that you read from.
    Mr. Engel. Does Andersen require its members to be--its 
accountants to be members of the American Institute of 
Certified Public Accountants?
    Mr. Baskin. I believe we require our audit partners and 
others who need to be members to be members, yes.
    Mr. Engel. Okay. So you are obviously aware that the AICPA 
has an extensive code of professional ethics?
    Mr. Baskin. Yes, sir.
    Mr. Engel. Then obviously it had to have been obvious to 
you that that code was being violated; was it not?
    Mr. Baskin. I was not directly involved in the Enron 
engagement, and so it was not obvious to me, no. I was not 
aware of it.
    Mr. Engel. Are you aware that violating these standards and 
subsequent expulsion is cause for a company to fire an 
employee?
    Mr. Baskin. I am sorry. Could you repeat the question?
    Mr. Engel. Well, violating these American Institute of 
Certified Public Accountant Standards would be reason to fire 
an employee?
    Mr. Baskin. I think that certainly would be something that 
we would have to consider, yes.
    Mr. Engel. Would you not logically say that the destruction 
of financial documents after a Federal investigation has been 
launched would be a violation of that code?
    That is not even grey; it is certainly, to me, black and 
white.
    Mr. Baskin. Congressman, I would want to know the facts 
about who was investigating, what part of the SEC was doing the 
investigating, what were they looking into. Was it financial 
statements or was it some other aspect of their reporting? But 
before I would conclude that we had crossed some threshold--I 
don't think that simply because someone in the SEC is 
investigating is sufficient.
    They communicate with our clients quite often, and on a 
continuous basis.
    Mr. Andrews. Congressman, could I address your question?
    First, with regard to your reference to the AICPA 
Professional Code of Conduct, we as an organization fully 
subscribe to that, as well as to any of the other SEC-related 
independence guidelines that we as an organization have to 
comply with. We totally concur with that. We believe in this 
engagement we have complied with those rules.
    The issue related to document destruction, we didn't look 
at that from an AICPA Code of Conduct standpoint, we looked at 
it as an incredible, gross error in judgment at a minimum, and 
certainly probably a violation of our policy; and that is why 
we would take that action.
    But we fully subscribe to the requirements of the AICPA 
Code of Conduct, as well as the SEC rules and regulations 
around those subjects, as well.
    Mr. Engel. Well, let me ask you----
    Mr. Greenwood. The time of the gentleman from New York has 
expired. The Chair will do his usual granting of 1 additional 
minute.
    Mr. Engel. Can an accountant be personally sued for 
malpractice as doctors and lawyers can be? And should not 
accountants be held legally responsible for negligence?
    Mr. Andrews. Congressman, accountants can be and are sued, 
as the firm is. So both individually and as a firm we are 
accountable.
    Mr. Greenwood. The time of the gentleman from New York has 
expired.
    Chairman Tauzin. Would the gentleman--he had a little time. 
I want to clarify something for the record if the gentleman 
will allow me. Will the gentleman yield?
    Mr. Engel. Certainly.
    Chairman Tauzin. Let me make something clear on the record 
for all of those attending these sessions, either in person or 
by television.
    Someone made a statement earlier that we had passed a law 
in 1995 relieving the accounting profession of litigation 
liability. That is not correct. Under that act accountants are 
responsible proportionately for nonknowledgeable violations. 
And when they are in knowledge of something negligent, they are 
liable fully, in joint and several liability with their client. 
That is current law. That has never been repealed. It has not 
been repealed in the 1995 act.
    Second, the 1995 act did not relieve accountants of 
liability for making intentionally wrong statements. All the 
act did was codify a court decision, a Federal appellate court 
decision, relative to forward-looking information, we think the 
company is going to do well, but here are the things that could 
hurt it if it doesn't do well, that kind of stuff.
    Third, the act that was discussed earlier did not change, 
nor touch nor repeal nor alter the Supreme Court decision on 
aiding and abetting; it had nothing to do with it. It retained 
accountant's liability when they are negligent knowingly, fully 
and completely, and when they are not knowingly, they are 
proportionately liable with their clients. That is the current 
state of the law.
    I thank the gentleman for yielding.
    Mr. Engel. Thank you for clarifying that. I think it is an 
important clarification.
    Mr. Greenwood. The Chair thanks the gentleman. And the 
Chair will recognize himself, and we will begin a second round 
of questions for those members who wish to participate.
    It has been the position of Arthur Andersen all along that 
the buck basically began and stopped with Mr. Duncan, that he 
was not directed by superiors to destroy documents or to 
command others to destroy documents. Now, is that correct?
    That is your position that is--I understand Mr. Berardino 
has testified to. That is what your press releases have said. 
That is what you have all said today in your testimony.
    Mr. Andrews. Congressman, I would like to clarify that.
    What I have said and what I believe the firm has said at 
this point is that we are engaged in an extensive investigation 
of what happened. We are part of the way through that. At this 
point in time, we had enough information to take the action we 
took on Mr. Duncan, based on the gross errors in judgment.
    That investigation continues. And I assure you that 
wherever that investigation leads, to whomever it leads, we 
will take appropriate action.
    So our investigation is in process and certainly far from 
finished. We don't mean to suggest that should it lead 
elsewhere, we in any way would resist taking it in that 
direction.
    Mr. Greenwood. Very well. Early on, I think perhaps 
September, Arthur Andersen created the Core Consultation Team. 
I believe many of you, Mr. Andrews served on that, Ms. Temple 
served on that, Mr. Odom served on that; is that correct?
    Mr. Andrews. Congressman, no, I was not part of the Core 
Consultation Team.
    Mr. Greenwood. You invited--for instance, the memo of 
October 23 that came out from Mina M. Trujillo, regarding a 
conference call from the Core Consultation Team, was copied to 
you, Mr. Andrews. Did you participate in that conference call?
    Mr. Andrews. Congressman, I did not participate in that 
conference call.
    Mr. Greenwood. You did not participate in the consultation 
of the consultation group? You were not a party to the 
discussion?
    Mr. Andrews. I am familiar with the Consultation Team. Yes, 
I did have conversations at times with the Consultation Team. I 
was not party to that call.
    Mr. Greenwood. Why was the Consultation Team created?
    Mr. Andrews. The Consultation Team was created because, as 
we said, had indicated, during the third quarter there were a 
number of activities going on in terms of transactions and 
other things that have been discussed.
    And that Consultation Team--there was a--there was, because 
of the nature of the activities, the degree of things being 
considered, the complexity of the things being considered, that 
was created. And it is our policy and our culture to encourage 
consultation. And so that would be appropriate.
    Mr. Greenwood. You had senior members, you had people from 
Chicago on this team, Rich Corgel was on this team, he was 
Practice Risk Management Group Director, a superior position to 
Mr. Duncan certainly and to Mr. Odom; is that correct?
    Mr. Andrews. Mr. Corgel is what we call U.S.--he is in 
charge of our U.S. Practice Director role. Mr. Odom is a 
Practice Director as part of the Corgel team.
    Mr. Greenwood. Let me get to this. What I want to know is, 
when you had these discussions and there was a conference call 
that was scheduled for 4 on October 23, on the agenda was 
``status of documentation,'' and that is Tab 13.
    This document that I am referring to, Tab 13, I would like 
you to take a look at that. And there is a long list of agenda: 
``SEC, third-party actions, legal representation, status of 
documentation, response to SEC.''
    Mr. Odom, are you looking at this document?
    Mr. Odom. Yes, sir.
    Mr. Greenwood. Now, in this conference call, I have 
included Mr. Duncan, but also included senior management from 
both Houston and Chicago.
    Was there discussion at all about the document retention 
issues? Because, what Ms.--''status of documentation'' is 
listed in this as an agenda item. And Ms. Temple is saying that 
was there to talk about the need to collect data from around 
the world to analyze Enron's decisionmaking, and this was not 
about a discussion of documentation that ought to be retained 
or destroyed. Is that your testimony?
    You are saying--you have testified, Ms. Temple, that that 
was the--that the ``status of documentation'' is on that list 
for the purpose of--that was there so you could discuss the 
need to retain documents. Is that your recollection? That is 
why that was on there?
    Ms. Temple. My recollection was that--an inquiry as to the 
status of the ongoing current work by the engagement team in 
the third quarter and the issues that the team was trying to 
deal with as they arose.
    And my notes from that conference call indicate that the 
engagement partner reported that Arthur Andersen was trying to 
gather all of the documents regarding the transactions from 
around the world.
    But I believe----
    Mr. Greenwood. And was that for purposes of litigation or 
for purposes of preservation?
    Ms. Temple. I believe that was for purposes of getting all 
of the relevant information together, to understand the facts 
and to preserve the facts.
    Mr. Greenwood. Okay. Is that your recollection, as well, 
Mr. Odom?
    Mr. Odom. Yes, sir. I believe it is my recollection.
    I would also like to clarify that the initial core team of 
the people to whom the memo was sent to, and the cc's were 
people who were invited to participate in this first call, and 
I did participate in this call. I did not participate in all of 
the core calls after that, although I did in some.
    Mr. Greenwood. Let me ask you this question.
    Mr. Berardino in his press release gave the reasons why Mr. 
Duncan was fired. He said he was fired because he ordered the 
destruction of documents.
    Who told you, who told your team, who told your attorneys 
that Mr. Duncan ordered the destruction of documents? Did Mr. 
Duncan tell you that?
    Mr. Andrews. Mr. Chairman, that information related to that 
conclusion, and that is in Mr. Berardino's memo or press 
release of January 15 as the result of the investigation work 
we had done to that point in time.
    Mr. Greenwood. Who said Mr. Duncan ordered the destruction 
of documents? Was it Mr. Duncan or was it someone who was 
destroying documents at Mr. Duncan's command?
    Mr. Andrews. My understanding is that it was a result of 
information from all of those interviews, including interviews 
with Mr. Duncan, review of the information that we had on that, 
as well as others.
    Mr. Greenwood. Mr. Duncan acknowledged that he destroyed 
documents contrary to Andersen's policy or that he ordered 
others to destroy documents contrary to Andersen's policy?
    Mr. Andrews. I did not directly interview Mr. Duncan. I 
don't want to suggest that he made the statement that it was 
contrary to Andersen's policy.
    What Mr. Duncan did was conduct the meeting on October 23 
and give instructions--and provide instructions to comply with 
the policy.
    Mr. Greenwood. How do you know that? Did he say that he did 
that? Did others in the firm say that he did that?
    Mr. Andrews. Mr. Chairman, my information is as a result of 
the information shared with me as a result of the investigation 
that we have going on, which included interviews with Mr. 
Duncan and others, as well as review of documents that have 
been recovered.
    Mr. Greenwood. Did Mr. Duncan create this initiative to 
comply with policy or in opposition to the policy?
    Mr. Andrews. Mr. Chairman, Mr. Duncan would have to answer 
that question.
    Mr. Greenwood. So no one in Arthur Andersen has ever said, 
Mr. Duncan told me to destroy documents?
    Are you aware of any employee who said, Mr. Duncan told me 
to destroy documents?
    Mr. Andrews. I do not know the answer to that. Again, once 
the investigation is completed----
    Mr. Greenwood. But you have said--the Arthur Andersen press 
release asserts that Mr. Duncan conducted himself in, using 
poor judgment, violation of policy.
    My question is, how did Arthur Andersen come to that 
conclusion when you have not indicated that either he admitted 
it, he came forth and said, You know what I did? I broke the 
rules. I don't know what got into me. I started telling people 
to destroy documents. And you have not said, and by the way, 
these are the employees who destroyed the documents pursuant to 
Mr. Duncan's directions, and that is why we fired the guy.
    Mr. Andrews. Let me clarify. Mr. Duncan conducted a meeting 
that----
    Mr. Greenwood. Let me just clarify before you clarify.
    The Andersen press release says, ``Although the firm is 
still working to collect all of the facts, it has learned that 
at the direction of the lead partner, an expedited effort to 
destroy documents in Houston was undertaken.''
    So how did you learn that?
    Mr. Andrews. We have learned that as a result of interviews 
with Mr. Duncan and others.
    Mr. Greenwood. So Mr. Duncan said, I led an expedited 
effort to destroy documents?
    Mr. Andrews. No, that is not what I am saying, Mr. 
Chairman.
    What I am saying is that he conducted a meeting with a 
group of the engagement team with the policy----
    Mr. Greenwood. How do you know that? How do you know that 
he did that?
    Mr. Andrews. Through the interviews that we have conducted.
    Mr. Greenwood. With whom?
    Mr. Andrews. With our investigators.
    Mr. Greenwood. No. Whom did the investigators query?
    Mr. Andrews. Mr. Duncan, as well as others.
    Mr. Greenwood. And who are the others?
    Mr. Andrews. I don't have the information on the others.
    Mr. Greenwood. We will need to know who those others are.
    Mr. Andrews. But what I want to make clear is, as a result 
of that meeting, after that meeting, an extensive document 
destruction and e-mail removal process resulted. So clearly, to 
us, the results of that meeting led to that activity, and Mr. 
Duncan was engaged----
    Mr. Greenwood. We know that that expedited effort didn't 
occur because of telepathy. So therefore either Mr. Duncan 
said, It is time to expeditiously, and contrary to our policy, 
start destroying documents; or he didn't.
    And he doesn't admit that apparently. He has not said I--he 
didn't come to your investigations and say, you know what? Mea 
culpa, I told these people to destroy documents contrary to our 
policy. It was a rush. It was expedited.
    Nor have you indicated to us at any time that his 
underlings came and said, Boy, this is what we were told. We 
were told to hurry up and rush and destroy documents.
    He didn't tell our investigators that he did this.
    Mr. Andrews. I am not here to defend a policy. What I have 
said is that the activity that resulted from that meeting, 
large quantities of destruction of documents, is at best an 
incredible error in judgment and totally inappropriate and not 
consistent with what we would intend to take place or what this 
firm stands for.
    Mr. Greenwood. Why do you think Mr. Duncan went about this?
    You fired him. Pretty strong action. What does the company 
think motivated Mr. Duncan to go forward with this expedited 
rush to destroy documents, putting his job on the line, I would 
assume putting at risk all of those under him who were engaged 
in destroying documents in an expedited, rushed fashion, 
contrary to your policy. Why would he do that?
    Mr. Andrews. Mr. Chairman, I don't know. And I hope by the 
time the investigation is done----
    Mr. Greenwood. Nobody asked him why he did that? Before you 
fired him, nobody said, Why did you do this? What got into your 
head?
    Mr. Andrews. I am sure our investigators had inquired along 
many different lines. But what----
    Mr. Greenwood. You are sure of that?
    Mr. Andrews. I am clear they interviewed him, yes. They 
have interviewed him on multiple times.
    Mr. Greenwood. Before you came to testify about all of 
this, did you ask your investigators what the heck he said?
    Mr. Andrews. My understanding is that he said that he 
conducted the meeting, he shared the policy, or discussed the 
policy, with the people at the meeting, and the resulting 
actions----
    Mr. Greenwood. He passed out the policy and said, Here is 
the policy?
    Mr. Andrews. I don't know exactly how he passed it out or 
if he passed it out. But he discussed the policy.
    Mr. Greenwood. They just took the policy that had been 
sitting around for years and said, We'd better get to work 
here?
    Mr. Andrews. Mr. Chairman, I don't know how he conducted 
himself at the meeting because I wasn't present.
    Mr. Greenwood. My time has expired.
    The Chair recognizes the gentleman from Florida, Mr. 
Deutsch.
    Mr. Deutsch. Thank you, Mr. Chairman. And I think we 
actually, absolutely know more than we did before the meeting 
started, not as much as I think any of us want to know.
    I want to shift focus a little bit, because I think this is 
going to probably be the last round, and at least give each of 
you an opportunity to touch on this. And it goes back to my 
original opening statement of the sort of big-picture issue, 
which is really regulatory safeguards.
    The whole premise of what we believe happened is that Enron 
was gaming the public accounting system. At least that is a 
very likely sort of scenario, that they, through these 
partnerships and through offshore issues, were putting losses 
in those areas that, effectively, their balance sheets did not 
reflect; and analysts, Wall Street analysts or for that matter 
any investor trying to understand what was going on with Enron, 
was not able to do.
    From any of your perspectives, from the public accounting 
side--you know, again this is sort of more the big-picture 
issue as opposed to some of the details that we have dealt 
with. But from that perspective, can you offer suggestions to 
us that--is the system broken?
    If you recall, most of--I think all of you were here for my 
opening statement. Are there other Enrons out there? Are there 
other companies that are doing effectively exactly the same 
thing that Enron is doing? And for that matter, all of them 
have big five accounting firms, and the big five accounting 
firms--again, not the issue of destruction of documents, but 
the issue of reporting under present, you know, accounting 
rules, clearly is a skirting of the rules, clearly is a gaming 
of the system.
    Now, again I am not ready to say that that gaming was 
illegal. It was awful. It was terrible. I was about to say when 
my colleague was talking about maximum security prison, that 
might be too good a condition for some of those people. But the 
reality is, in terms of that issue, which was really the big 
issue, do any of you have any comments that you would like to 
make on that?
    I know it is not why you were asked to come here, but you 
have a lot more experience in the public accounting world than 
I do.
    Mr. Andrews. Well, Congressman, let me comment on it.
    I think the intent and objective of financial statements 
and other disclosures should be to inform users of those 
statements in a way that there is clarity to that information, 
so they can make informed decisions, whether for investment 
reasons or for others. So I totally concur with that.
    And I believe we do need to improve that process for that 
clarity to be at the level it should be. Because the investor, 
or whoever uses financial statements, needs to be able to 
understand them for their purpose.
    Mr. Deutsch. Is it a fair thing to say that no one could 
really look at your reports, Andersen's reports, about Enron 
and really understand what was going on in Enron?
    Mr. Andrews. Congressman, our responsibility with Enron 
as--they are Enron's financial----
    Mr. Deutsch. I am not saying you did anything wrong. 
Because there are some very, very smart people--this is also a 
company that didn't pay taxes for 6 years at the same time 
people are making billions of dollars off of tax, so gaming the 
system.
    And again the whole thing we have talked about, you know, 
even to the last day of gaming the system, of changing the 
pension manager to lock people in for an additional 60 days.
    In a sense, it is our job to prevent this. And I don't know 
how--you know, we can't stop all crooks, especially white 
collar crooks. But our job is to do the best we possible can.
    You can respond.
    Mr. Andrews. Well, Enron was a very complex company. There 
is no question that their financial statements and related 
disclosures are complicated. Many have said that they are 
difficult to understand.
    So, again, to the test of do you have the clarity that some 
are requesting in those financial statements, from that vantage 
point can an investor understand everything?
    But very sophisticated investors had those financial 
statements. They have a responsibility to understand them as 
well. The company and ourselves have a responsibility to make 
sure those financials are materially presented--fairly 
presented in conforming with generally accepted accounting 
principles.
    But as you observed, many have commented on the perplexity. 
But this is a very complex company.
    Mr. Deutsch. But again we kind of look at the other sides. 
But at this point we have no one--I am not aware--for instance, 
the bond rating companies basically didn't downgrade on a 
continuous basis. The company imploded.
    At the same time--and, you know, you talk about people 
being able to read it. These are the most sophisticated people 
in the world trying to look at the statements that you provide 
them, and they don't know what is going on. It is not the 
employee with the $500,000 401(k); it is literally the best 
analysts in the world couldn't understand what was going on 
with your statements.
    And again I am not ready to say you did anything wrong. But 
the other issue is, if Enron did it, how do I know that there 
are not other companies out there that are doing the same sort 
of things, and that from a financial market basis--I mean, one 
of the incredible success stories is the transparency that you 
as an institution, Arthur Andersen, along with your colleagues 
in the accounting profession, provide.
    I mean, the system works. I mean, we have had unprecedented 
strength in our economy for one of these reasons. We have 
access to capital unprecedented in the history of the world for 
your successes. And what I am saying is that, you know, it 
failed incredibly here.
    And, you know, is it going to happen again? Is it going to 
happen this week? Is it going to happen next week? Next month? 
For one company? For two companies? For three companies? 
Because obviously there were individuals who made a lot of 
money gaming the system.
    I mean, who walked home, as Congressman Rush pointed out--I 
mean, there are a lot of people who are sitting on tens, 
hundreds of millions of dollars because of their involvement 
with Enron.
    Mr. Andrews. Congressman, I can't comment on the other 
companies obviously.
    But, first of all, as to financial statements, Enron was a 
business failure. I don't think the financial statements caused 
the business failure.
    Mr. Deutsch. Right. And I agree, businesses do fail. But 
people in public markets, let me just say--my time has expired, 
but just a last question.
    In the case of the efforts that Enron used, the 
partnerships and the offshore partnerships and the offshore 
investments, in terms of shifting the debt that we are now 
aware of, that have now been disclosed, if Arthur Andersen was 
in another company today and those same things were going on--
this has nothing to do with the destruction of documents--what 
would your statement be?
    What would you be saying in your public accounting report 
about that company today, knowing what we know about Enron? 
Would it be the same? Would you be issuing the same report?
    And again, this is really the heart of the issue. I mean, 
you know, if that same situation is going on today, is Andersen 
saying everything is fine with the company?
    And you have these internal debates, but ultimately, hey, 
they are really sharp, they really know the rules, we are not 
supposed to report those partnerships because they are off 
book. I mean, let's--we don't have to. And everyone sort of 
winks at each other knowing what is going on.
    Again, I have to be--you know, you have very, very smart 
people involved. And you know the people at Andersen, the 
partners who are in charge of Enron, knew exactly what they 
were doing. They knew exactly what Enron was doing in terms of 
this shifting. I am 100 percent convinced of that.
    Now, did they violate the law? Probably not. Did they 
violate accounting practices? I don't know. Did they, you know, 
did they engage in something which created a disaster for 
untold people in so many ways? Absolutely.
    And I guess my question is, you know, are you reevaluating 
it now? Are the other--you know, four firms reevaluating it? 
Because what would you do now? What would you do today with 
Enron in terms of your transparency, to tell the market, to 
tell the world what is going on in that company? Would it be 
the same report?
    Mr. Andrews. Well, the financial statements need to have 
appropriate application of the principles and the appropriate 
disclosure. And I think the Enron situation has certainly 
heightened attention to that. And actually the SEC and others 
have already taken some actions to recommend enhanced 
disclosures, particularly in the management discussion and 
analysis around risk factors and other items. That reaction, I 
believe, is in direct reaction to the situation with the Enron 
engagement.
    So there is strong encouragement to make sure that the 
risks are appropriately presented and disclosed, either in the 
financial statements or other parts of the 10-K or annual 
report of the company.
    So, to your question, I think many of us, and we have said 
this, that the financial reporting model can be improved so 
that it is better; disclosure can be improved in many ways.
    And so I think we definitely would subscribe to that, yes. 
And I think progress has already started. I think the 
profession is looking at that. The SEC is looking at that, as 
is Congress. So I think there will be improvements. I think out 
of any situation like this, let's hope that we all learn and 
changes occur to improve in whatever direction is appropriate. 
I would agree that financial disclosures would be one.
    Mr. Greenwood. The time of the gentleman from Florida has 
expired. The Chair recognizes the chairman of the full 
committee, Mr. Tauzin.
    Chairman Tauzin. Thank you, Mr. Chairman.
    Before I begin this line of questions, I want to go back, 
Ms. Temple, to a question Mr. Markey asked about your 
interpretation of obstruction of justice and the requirements 
of retention of documents when, in fact, a proceeding is 
started. And I want to put you all on notice about that point, 
because I don't want to lead you into answers that might put 
any of you at risk unless want to be there.
    But my understanding, Ms. Temple, is that obstruction of 
justice can apply even before a proceeding is commenced when 
documents are destroyed with the intent to make them 
unavailable to a proceeding that is likely to be commenced, in 
order to make sure that those documents are not available for 
that proceeding and that those documents would, in fact, be 
relevant to that proceeding.
    Now, I don't know if I've got it exactly right, but that is 
pretty much my understanding of obstruction of justice. And I 
wanted to say that before I ask you all of these questions.
    I want you all to respond yes or no if you can. I want to 
take you through a timetable now of SEC activities in this 
matter.
    Beginning with October 17, SEC sends its first letter to 
Enron requesting information regarding third quarter losses.
    Please answer, each of you, whether you are aware of that 
letter at that time.
    Mr. Odom. No, sir, I was not.
    Ms. Temple. I was not aware of that letter on October 17.
    Chairman Tauzin. When did you become aware of it?
    Ms. Temple. To the best of my recollection, I received a 
copy of the letter on October 25. No later than October 23, 
perhaps a day or two before, I learned that the SEC had written 
a letter to Enron asking for documents about related party 
transactions.
    Chairman Tauzin. Mr. Odom, did you learn of that letter at 
any time?
    Mr. Odom. Yes, sir, about the same time Ms. Temple did.
    Chairman Tauzin. How about you, Mr. Baskin?
    Mr. Baskin. No, sir. I was not aware of the letter at that 
time.
    Chairman Tauzin. Have you ever been aware of it?
    Mr. Baskin. Yesterday I became aware of it.
    Chairman Tauzin. How about you, Mr. Andrews?
    Mr. Andrews. No, sir. I definitely was not aware of it on 
October 17.
    Chairman Tauzin. When did you become aware of it?
    Mr. Andrews. I am not sure. But sometime in the latter part 
of October.
    Chairman Tauzin. Now, Mr. Duncan did give us an extensive 
interview prior to his taking the Fifth Amendment, as you know. 
In that interview, he says that he learned of the SEC inquiry 
of Enron on October 19-20, and that he informed others at 
Andersen, including Odom and Temple, on that date.
    Do either of you deny that?
    Mr. Odom. I was not in Houston. He may have called me at 
home, but I do not recall the call.
    Chairman Tauzin. Ms. Temple?
    Ms. Temple. I don't recall at this time. To the best of my 
recollection, I recall focusing on the requests or learning 
about the requests on the October 23 call.
    Chairman Tauzin. On October 22, Enron publicly acknowledged 
an informal inquiry had been started by the SEC--publicly 
acknowledged. That is when I learned about it, when America 
learned about it.
    Did any of you learn about it with us on that date?
    Mr. Odom. Yes, I believe that is the date.
    Chairman Tauzin. So on the 22nd you learned publicly that 
Enron acknowledged an informal inquiry by the SEC?
    Ms. Temple?
    Ms. Temple. Yes, I believe that is correct.
    Chairman Tauzin. Mr. Baskin?
    Mr. Baskin. I honestly don't recollect knowing about it, 
no, sir.
    Chairman Tauzin. Mr. Andrews?
    Mr. Andrews. That is probably the time that I became aware 
of it as well, so I said, sometime subsequent to the 17th.
    Chairman Tauzin. Mr. Baskin, you really don't think you 
knew about it when Enron announced that there was a public 
announcement that the SEC has started an informal inquiry?
    Mr. Baskin. I try to read the Wall Street Journal most 
every day. And I probably read about it, but I don't recall.
    Chairman Tauzin. So you probably were aware of it.
    That is not the end of the SEC activities. On October 31, 
the SEC upgraded its informal inquiry into a formal 
investigation. Did any of you know about that decision by the 
SEC to formally upgrade it to a formal investigation?
    Mr. Odom.
    Mr. Odom. I certainly knew about it the day that Enron 
announced it.
    Chairman Tauzin. How about you, Ms. Temple?
    Ms. Temple. Yes. I learned when Enron announced it, yes.
    Chairman Tauzin. How about you, Mr. Baskin?
    Mr. Baskin. What I read in the newspaper.
    Chairman Tauzin. How about you, Mr. Andrews?
    Mr. Andrews. Somewhere around that time, yes.
    Chairman Tauzin. Thank you.
    It wasn't until November 8 that the subpoenas were issued. 
Now, November 8 the subpoenas were issued. On November 9, Ms. 
Temple, you leave the voice mail.
    On November 10 you write this extraordinary memo. It is a 
good one. This really is a good one. It says, we don't want 
anybody to falsely accuse Arthur Andersen of destroying 
documents. That is what it says. So we are not only going to 
preserve current documents, I want you to preserve all of your 
new documents. Save everything. And I want to read to you from 
that memo.
    On the second page this is what you told everybody to do--
everybody now. No. 1, existing documents. ``effective 
immediately, all existing Enron-related documents and materials 
must be preserved and nothing should be destroyed or 
discarded.''
    Now, I have got a very simple question to ask you. If that 
was the policy that was announced on November 10, effective 
immediately, what policy was in effect on November 9?
    Ms. Temple. The firm's written documentation retention and 
destruction policy.
    Chairman Tauzin. Right. Which permitted destruction?
    Ms. Temple. Right. Only in certain circumstances. And the 
firm's policy continued to be in place.
    Chairman Tauzin. Well, let me make sure I've got this on 
the record.
    On November 9, the day before this policy was issued, 
``effective immediately,'' the policy of Arthur Andersen was 
that it is okay to destroy documents that might be related to 
the Enron investigation by the SEC and this committee. Is that 
correct?
    Ms. Temple. The policy states that if there is threatened 
litigation, no related material shall be destroyed. It also 
states that in any circumstance, all materials relevant to the 
opinions and findings of the auditors shall be maintained.
    Chairman Tauzin. But, you see, you felt it necessary, not 
on the date that the SEC announced an informal inquiry but on 
the date Enron announced it. You didn't find it necessary to 
write this memo the date that the SEC upgraded its 
investigation from informal to a formal investigation; you only 
found it necessary to write this memo saying, keep everything, 
don't destroy anything, the day a subpoena was issued.
    And up until that time, the policy of Arthur Andersen was, 
it is okay to destroy documents if you think that it fits our 
policy of document destruction; is that right?
    Mr. Andrews, you are itching to answer. Go ahead and 
answer.
    Mr. Andrews. I think the reason the memo is written at that 
point, once a subpoena is received, there is no question there 
should be no destruction of documents.
    Chairman Tauzin. You don't think there was any question 
documents shouldn't be destroyed when you learned that a formal 
inquiry had been instituted by the SEC?
    Mr. Andrews. Well, prior to the receipt of a subpoena what 
I would expect, and we expect, our people to do is understand 
the facts and circumstances when a situation----
    Chairman Tauzin. How about when the SEC starts a proceeding 
against you? Is it not the responsibility of all of the folks 
at Arthur Andersen, every accounting firm, to not destroy 
documents that might be relative to that proceeding?
    Mr. Andrews. Whenever there is a proceeding against us, 
absolutely we wouldn't destroy documents.
    If I may, may I----
    Chairman Tauzin. Well, please tell me when in the time line 
I described to you, in your opinion, any one of you, please 
tell me, on behalf of Arthur Andersen, when you thought it was 
wrong to destroy any more documents? What date was that? Was it 
the date that you found out the letter had been written? Was it 
the date that you found out publicly, when we all found out 
that Enron announced an informal inquiry by the SEC? Was it the 
date that the SEC announced a formal inquiry? Or was it only 
the day you got a subpoena saying, turn over the documents.
    When in that time line was it the responsibility of Arthur 
Andersen to stop destroying documents? Please tell me. Any one 
of you.
    Mr. Andrews. I believe the responsibility existed prior to 
the receipt of the subpoena.
    Chairman Tauzin. I think it did, too. When did it?
    Mr. Andrews. The events around October 17, 18, 20, all of 
the things that were happening, the receipt of the SEC letter, 
the announcement of the quarterly results and the resulting 
litigation, that those were factors that the engagement 
partners----
    Chairman Tauzin. I think so, too. And I want to ask you, 
Ms. Temple, if you agree with Mr. Andrews--tell me if you don't 
agree with him, first of all. You don't agree with him?
    Ms. Temple. I agree that the policy requires retention of 
related materials----
    Chairman Tauzin. If you agree that the destruction should 
have stopped back in October when Mr. Andrews said it should 
have stopped, why didn't you write this memo then, saying 
retain everything, don't destroy anything anymore, and all of 
your new products, save it too, because we're under 
investigation and there's litigation coming and you better make 
sure that nothing is destroyed for the sake of the reputation 
of our company and for the sake of the integrity of the 
investigation? Why didn't you issue it then?
    Ms. Temple. The issue was not raised with the legal group--
--
    Chairman Tauzin. Nobody raised it.
    Ms. Temple. [continuing] at that point in time. The policy 
was in existence to require detention----
    Chairman Tauzin. Does it have to be raised, Ms. Temple, 
when you are the counsel representing this company internally 
on litigation? Does anybody have to raise it, or is it 
somebody's responsibility in the company to say, stop 
destroying documents, we're under investigation? Whose 
responsibility was it if it was not yours? Did somebody have to 
raise it? Whose responsibility, Mr. Andrews? Was it the 
president? Was it you? Who was it?
    Mr. Andrews. In our policy, that responsibility--the policy 
that we're revising, and I acknowledge we're revising--in that 
policy, that responsibility is with the engagement party.
    Chairman Tauzin. With an accountant, not a lawyer? You give 
the responsibility to an accountant to decide whether it's 
legally permissible to destroy documents relative to a 
proceeding? Let me just tell you, I don't know what's going to 
happen out of all of this, I really don't. I hope you're all 
okay. I don't know. But I'll tell you this. Every accounting 
firm that is listening to this had better listen very 
carefully. If all of your policies are to let accountants 
decide when it's legal to destroy documents in a pending 
investigation, an awful lot of people are going to be in 
trouble down the road, not just in this case. I hope you think 
seriously about what kind of policies you have on the retention 
of documents and whether those policies are clear, are vague, 
or whether you just send memos out for somebody else to 
interpret or whether you eventually recognize, as you did, Ms. 
Temple, at some point, that they needed guidance on what not to 
do and what to do. And they should have gotten that guidance a 
long time sooner.
    We wouldn't be here. We'd be scheduling the Enron hearing 
right now. But we're here discussing what happened at your 
company, because this guidance never went out when it should 
have gone out and because your company did not have a clear 
policy on making sure the documents were not destroyed once a 
notice was given by the SEC that it was checking into your 
business. That has got to change. If you don't change it, I 
promise you we will. Thank you very much.
    Mr. Andrews. May I respond?
    Chairman Tauzin. Yes, sir.
    Mr. Andrews. I'll comment on what I think should have taken 
place and I'll comment on the policy. What I believe should 
have taken place--I don't expect our audit personnel, as you 
say, the accountants, to understand the law. That's why we have 
other experts involved.
    Chairman Tauzin. Indeed.
    Mr. Andrews. What we do expect, a person in a responsible 
position, an audit partner, to have an understanding of the 
policy as well as the judgment to consult, and we encourage 
consultation. So we do not expect an engagement partner or 
audit partner or anyone else to make these decisions alone, but 
we do expect them to understand the policy and to have enough 
knowledge to raise the question and seek advice in this 
situation----
    Chairman Tauzin. Except, Mr. Andrews, except--and I'll 
conclude, Mr. Chairman--except once a legal proceeding is 
commencing or about to commence, all of that changes, and if 
you rely upon your accountants to seek advice instead of giving 
them advice at that time, all of you are going to be in deep 
trouble as we go forward.
    Mr. Andrews. My comment on the policy, I am not here 
defending our policy in the sense that it was complete and 
robust and anticipated all of the guidance that it should. 
That's exactly when we realized this situation had occurred, 
which was in early January, we suspended the policy we have. We 
put in place an interim policy that essentially required 
retention of everything and engaged a reputable firm to come 
in----
    Chairman Tauzin. Mr. Chairman, I want to make a request 
upon Arthur Andersen, if you don't mind, Mr. Chairman. The 
chairman has asked you to find out who the others were who 
destroyed documents. I think you ought to do a thorough survey 
within the company of everybody who destroyed documents, No. 1. 
I know you didn't keep logs of what was destroyed. Now, I asked 
about that. Is there a log kept under your policy of what was 
destroyed and what was kept? And the answer was, of course not. 
Then you'd know what we destroyed. So there are no logs kept.
    I'm going to ask Arthur Andersen to do that, to go back and 
reconstruct as much as you can about what was destroyed that we 
can't recover from hard drives. I want you to be clean with us 
about what was destroyed and what was not destroyed to the 
extent you can. And if you're as clean as you can be about it, 
then we're not going to have as many problems as we've had at 
this hearing. But the clear picture we're getting at this 
hearing is that somebody felt it was a good idea to get rid of 
an awful lot of documents before our investigators got busy and 
other investigators got busy. That is the clear message I'm 
getting and it's not a pretty one.
    Mr. Andrews. Can I respond to your points?
    Chairman Tauzin. Yes, sir.
    Mr. Andrews. First of all, in terms of the investigation 
and other people, our investigation will be complete and 
comprehensive, and we will take whatever action based upon that 
investigation that's appropriate.
    Chairman Tauzin. You have my request. I hope you fill it.
    Mr. Andrews. I do. Trust me, we will do it and we're in the 
process of doing it, and when it's completed we will take those 
actions. And on top of our investigation being led by Davis, 
Polk, we have in addition to that engaged former Senator 
Danforth to come in and look at what we found, to see did we do 
it thoroughly, was it completely. We, the firm, are not placing 
any restrictions on the scope of that review at all, and it 
will be thorough and it will involve everyone that was involved 
in this process.
    Chairman Tauzin. Just be aware that we too will be 
examining the work you do to see that it was thorough and 
complete, not just Senator Danforth.
    Thank you, Mr. Chairman.
    Mr. Greenwood. The time of the gentleman from Louisiana has 
just expired. The Chair recognizes the gentlelady from 
Colorado.
    Ms. DeGette. So I'll have a commensurate amount of time?
    Mr. Greenwood. When you're chairman you will, yes.
    Ms. DeGette. Mr. Odom, I believe that you got the October 
12 e-mail from Ms. Temple about the document destruction and 
retention policy. Is that correct?
    Mr. Odom. Yes, ma'am.
    Ms. DeGette. And I believe you told our staff that to get a 
memo like that was very unusual. Correct?
    Mr. Odom. I don't recall--I mean, I don't remember using 
those exact words.
    Ms. DeGette. Okay. Well, you had never gotten a memo like 
that reminding you of the policy, had you, sir?
    Mr. Odom. I have never gotten one with a doc. link on it 
like that, no, ma'am.
    Ms. DeGette. One with a doc. link linking you back to the 
document retention policy. Is that correct?
    Mr. Odom. That's right.
    Ms. DeGette. And how long have you been with the company?
    Mr. Odom. Since 1969.
    Ms. DeGette. Thank you.
    Now, Ms. Temple, I wanted to ask you about something. This 
October 12 memo that you sent out to everybody, was that your 
decision to send that memo out?
    Ms. Temple. This e-mail?
    Ms. DeGette. Yeah.
    Ms. Temple. The particular e-mail in the Web site 
reference----
    Ms. DeGette. No, no. I want to know who decided to send 
this--that it would be a good idea to send this e-mail out to 
everybody. Was that you?
    Ms. Temple. I believe I thought of that based on the 
discussions about the legal advice and the reference to the 
policy I had with others.
    Ms. DeGette. Okay. Now, who did you have those discussions 
with?
    Ms. Temple. I discussed the legal advice about appropriate 
documentation with my supervisor and others----
    Ms. DeGette. And your supervisor was Don Dreyfus?
    Ms. Temple. Yes.
    Ms. DeGette. Okay. And who else was involved in those 
discussions?
    Ms. Temple. I believe a senior risk management or practice 
director by the name of Jim Freidlief.
    Ms. DeGette. And Jim Freidlief also?
    Ms. Temple. Yes.
    Ms. DeGette. And you decided to send that e-mail out to 
remind people of the document policy because there were 
concerns about the growing thunderclouds over Enron?
    Ms. Temple. No. Because of the questions that had arisen 
about appropriate documentation and retention----
    Ms. DeGette. People were wondering what documents they 
should retain or destroy. Right?
    Ms. Temple. I testified earlier about the specific 
questions----
    Ms. DeGette. No. Just--you know, just yes or no I think 
would be good.
    Ms. Temple. No. It was about questions about specific 
documentation issues that had arisen.
    Ms. DeGette. Uh-huh, about what should be kept or 
destroyed?
    Ms. Temple. About how to date current period documents, 
about whether to acknowledge in writing--how to acknowledge in 
writing currently the fact that the firm had concluded that the 
prior accounting----
    Ms. DeGette. Those questions that you testified to or that 
you're delineating right now, does this policy that you linked 
in your e-mail answer those questions?
    Ms. Temple. It was used as a reference in providing advice 
to answer the questions.
    Ms. DeGette. Okay. But you gave the link to the entire 
policy, correct, not just one section?
    Ms. Temple. Correct.
    Ms. DeGette. Now, at that time, Arthur Andersen had not 
been served with a subpoena as of October 12. Correct?
    Ms. Temple. Correct.
    Ms. DeGette. And there is some sense, I think everybody 
here will agree, that there was probably some concern about 
pending litigation as of that time. Right?
    Ms. Temple. To the best of my recollection, I don't 
recall----
    Ms. DeGette. Well, you knew that there were probably--that 
there was a sense there might be lawsuits; I mean, really, 
didn't you?
    Ms. Temple. I don't recall that being a focus of discussion 
or----
    Ms. DeGette. I don't want to talk about a focus of 
discussion. I mean, you're a Harvard-trained lawyer. You're a 
litigator. You're an SEC expert, all of the things we've been 
talking to. You knew there might be a risk of litigation didn't 
you?
    Ms. Temple. I knew there was a possibility of litigation--
--
    Ms. DeGette. Thank you.
    Ms. Temple. [continuing] but we did not discuss it.
    Ms. DeGette. Now, Arthur Andersen's policy does not require 
retention of all documents when there is simply a risk of 
litigation but, rather, when Arthur Andersen is served with a 
subpoena, doesn't it?
    Ms. Temple. The policy has several different provisions 
requiring retention----
    Ms. DeGette. I know, uh-huh.
    Ms. Temple. [continuing] and it requires retention if 
there's threatened litigation----
    Ms. DeGette. Okay. Stop for a second. Why did you not send 
out an e-mail on October 12 telling people to retain all 
documents?
    Ms. Temple. At that point in time, there was no litigation 
against Enron that I was aware of. There was no litigation 
against Arthur Andersen----
    Ms. DeGette. Right.
    Ms. Temple. [continuing] that I was aware of----
    Ms. DeGette. In truth--and I don't want to mislead you, 
okay? I only got this document this morning. So it's taken me a 
few hours to look through it, but luckily I've had a few hours 
to look through it. And here's what I think the document says. 
The thing that says retain the documents in case of threatened 
litigation is in the executive summary. Right? And it's on page 
2, paragraph 9 of the executive summary. That refers you to 
paragraph 3.5.3, which I think is a typo and really means 
paragraph 4.5.4, because 3.5.3 talks about the kinds of 
information to be destroyed. 4.5.4 says in the event Arthur 
Andersen BU is advised of litigation or subpoenas regarding a 
particular engagement, the related information should not be 
destroyed. See policy statement 780. Right? Your adviser behind 
you is nodding his head yes.
    Ms. Temple. I see where that is, yes. Thank you.
    Ms. DeGette. And policy statement 780 says that you are 
only to retain documents other than the--other than the 
documents you're supposed to destroy if you're served with a 
subpoena. Right?
    Ms. Temple. Well, I think you have to read the retention 
policy, which also provides that all information relevant to 
the findings and opinions should be retained in 3.5.3.
    Ms. DeGette. Well, that's your work papers. Right?
    Ms. Temple. It says information having relevance to our 
opinions or findings to be a part of the central client 
engagement files.
    Ms. DeGette. Right. Except for 3.5.3 talks about all of the 
different things that should be destroyed. That's what we're 
talking about here today.
    Mr. Andrews, you don't know of any essential documents 
being destroyed by Mr. Duncan, do you?
    Mr. Andrews. What I know is that a large amount of 
documents were destroyed. At this time I'm not aware that any 
of those were what I call the permanent audit work papers.
    Ms. DeGette. Right. What we're really talking about is the 
backup papers, which you had said then, later on in November, 
should be retained.
    What I'm getting at here, Mr. Chairman, is I think the 
problem is with Arthur Andersen's policy, because Arthur 
Andersen's policy says if you're threatened with litigation, 
then you are to notify, and then it has the whole notification 
procedure of who you're to notify, but it does not say that you 
are to retain these backup papers. And the only time you are 
legally required, or under Arthur Andersen's policy--which it 
applies, I assume, to all of its clients--the only time you're 
required to retain those is if a subpoena is served, which is 
exactly what Ms. Temple did.
    And so my opinion, after looking at this, is that Mr. 
Duncan probably interpreted this e-mail on October 12 saying, 
oh, okay, I'm supposed to destroy all these documents, like 
drafts and preliminary versions, et cetera. That's what she's 
telling me. And then in November when they get the subpoena, 
they say, loop, we're not doing it. And I think the problem is 
that this policy allows reckless destruction of documents, and 
I think that that's what the problem is. And with that, I'll 
yield back any time I might have.
    Mr. Andrews. Could I comment on that?
    Mr. Greenwood. Yeah. You may certainly, Mr. Andrews.
    Mr. Andrews. First, with respect to the policy, again, I 
think we have acknowledged that we do not think the policy is 
as robust and well written as we would like, after we 
discovered this, and that's why we suspended it and introduced 
an interim policy. And we'll have, I would imagine, as sound of 
a policy as possible to cover all of these circumstances.
    Now, having said that, no policy can anticipate every 
situation that you can imagine. What I have said and what we 
have said is that what took place at the end of October, the 
volume of e-mail elimination, the volume of document 
destruction, is completely out of character with this policy, 
in my opinion. And even if it's not out of character with this 
policy, it is in fact a gross error in judgment and totally 
inappropriate and totally different than anything I've ever 
experienced in my career.
    Ms. DeGette. Let me just say something to you, Mr. Andrews. 
I was a litigator for 15 years, and I advised a lot of 
businesses. I didn't do SEC work, and I didn't work with ``Big 
5'' accounting firms. My clients were small businesses. But I 
will tell you that when I knew of threatened litigation against 
a client, I called them up, and I said, don't destroy a thing. 
And sometimes I had to go over and physically take possession 
of papers.
    And that's I think the ethical obligation of every attorney 
who represents a client, and it's the ethical obligation of 
every accounting firm or auditor who represents a client. I 
don't think that that is so unreasonable, that that should have 
been in your policy for all of these years, and I hope to God 
it's in the interim policy that you have adopted.
    Mr. Greenwood. The time of the gentlelady has expired. My 
mother, I think, would say that your policy was dumb like a 
fox.
    The chairman recognizes the gentleman from Florida, Mr. 
Bilirakis.
    Mr. Bilirakis. Thank you, Mr. Chairman. Mr. Odom, does 
Andersen rate all of its clients on the basis of risk 
management--on a risk management scale?
    Mr. Odom. Yes. Yes, sir, we do.
    Mr. Bilirakis. What is--has been the rating for Enron?
    Mr. Odom. It's always been at least maximum.
    Mr. Bilirakis. At least maximum?
    Mr. Odom. Yes.
    Mr. Bilirakis. Now, is maximum the highest?
    Mr. Odom. There's a max star.
    Mr. Bilirakis. There's a max star. Has it also been a max 
star?
    Mr. Odom. Yes, sir.
    Mr. Bilirakis. When was it at a max star? And max star is 
the highest?
    Mr. Odom. Yes, sir.
    Mr. Bilirakis. When was it a max star?
    Mr. Odom. It was a max star in 2000 and I think in the 
year--I don't know prior to 2000, but in 2000 it was a max 
star. In 2001 it was rated max, but we update that rating as 
the year goes on, and I'm sure it would have hit max star again 
before we did an audit--had we done an audit.
    Mr. Bilirakis. All right. Now, the criteria that you use in 
order to establish these ratings--there is a criteria, 
apparently, that you use. Right?
    Mr. Odom. That's correct.
    Mr. Bilirakis. All right. Is that criteria reflected in the 
work papers?
    Mr. Odom. Yes, sir, it is.
    Mr. Bilirakis. It is. And those work papers are available?
    Mr. Odom. I believe they are, yes, sir.
    Mr. Bilirakis. Boy, this better be more than a belief. I 
sure hope that's more than a belief. Mr. Andrews?
    Mr. Andrews. Yes. As consistent with what we have done, we 
said we'll provide the information that this committee or the 
SEC or the Department of Justice has requested.
    Mr. Bilirakis. Okay. And when we get into that portion of 
this set of hearings, those work papers--those work papers will 
be available? They're not--they're available now--you're saying 
they're available now because they have not been destroyed, and 
there is no criteria for having destroyed them, right, in your 
retention policy as I read it?
    Mr. Andrews. Right. The actual audit work papers 
themselves, certainly nothing will be destroyed now, and as I--
I'd like to just make sure I clarify one thing, because I may 
have not been as clear as I could have when you were 
questioning me earlier. I just want to make sure that we 
understand what an audit work paper is. An audit work paper is 
the permanent record, if you will, of the audit itself. That's 
where once you've done all of your work, reviewed all of the 
documents, it's where you reduced your documentation that 
becomes the permanent support for that audit conclusion. As I 
said earlier----
    Chairman Tauzin. Would the gentleman yield?
    Mr. Bilirakis. Yes.
    Chairman Tauzin. Again, that may not be the most important 
papers, however. The most important papers might be the 
Andersen consulting documents.
    Mr. Bilirakis. The initial papers.
    Chairman Tauzin. I'm understanding that Enron would contact 
Andersen for consulting services, we want to set up this 
partnership, we want to set up this financing arrangement and 
we want to know if it will pass audit later on, so comment on 
the structure and the financing of this situation so that it 
will pass audit later on. And then Andersen issues a consulting 
report to its client, like Enron, saying it's okay to set up 
Raptor. It's okay to set up Jedi the way you propose it; or no, 
it's not, and here's how you should change it if it's going to 
pass audit standards later on.
    Those consulting documents are probably much more 
important, Mr. Bilirakis, than the audit work papers. Is it 
possible that consulting documents were destroyed in this 
period when there was document destruction going on so 
massively, Mr. Andrews?
    Mr. Andrews. Well, let me comment. First of all, a client 
in a situation you have a complex transaction or they need to 
request, if you will, accounting advice regarding how a 
transaction might be accounted for, that would be a normal 
dialog that would occur with a client.
    Chairman Tauzin. But answer my question. Is it possible 
that those documents were destroyed?
    Mr. Andrews. In that documentation, to the extent that that 
documentation is important to an accounting and audit 
conclusion, they would become part of the audit work paper 
files. Your question about documents that were destroyed, as I 
said, at this point in time in your investigation, what I know 
was destroyed was a large quantity of e-mails and then other 
hard documents that were shredded. Now, the documents that were 
shredded, I do not know what was----
    Chairman Tauzin. Let me----
    Mr. Andrews. [continuing] the e-mail----
    Chairman Tauzin. Any of you know whether consulting service 
document reports were destroyed? Any of you know? Ms. Temple?
    Ms. Temple. I have no facts about----
    Chairman Tauzin. Mr. Odom?
    Mr. Odom. I do not know what was destroyed.
    Chairman Tauzin. Mr. Baskin, you have no knowledge?
    Mr. Baskin. I have no knowledge.
    Chairman Tauzin. Thank you, Mr. Bilirakis.
    Mr. Bilirakis. Well, so getting back into the risk 
management analysis, Mr. Odom and Mr. Andrews, whoever it might 
be more apropos, the original documentation, the original work 
sheets where you set out the criteria and your analysis and 
everything of that nature, and then that led to this final 
conclusion, I guess it is, which would be the document that Mr. 
Andrews is telling us would remain in the file. Would that 
original document be available, not the conclusion, if you 
will, but the original documentation that led to that 
conclusion? I mean, that's a work paper any way you look at it.
    Mr. Andrews. If your question is related to the work paper 
that led to that conclusion and that risk assessment----
    Mr. Bilirakis. Yes.
    Mr. Andrews. [continuing] there would be documentation in 
the audit file related to that.
    Mr. Bilirakis. And that would not have been destroyed? 
There's no way that the retention--the retention policy would 
have encouraged or required that to be destroyed?
    Mr. Andrews. Obviously the documents are shredded. I don't 
know what was in that, but to the extent that it's part of the 
permanent core audit files, the core materials, it would----
    Mr. Bilirakis. I think you can see where I'm leading here. 
A point was raised, that you're an auditor on one hand, but 
then you're also the consultant, and so you can see where the 
potential problem might rise. So your analyses are so darn 
important in terms of the risk management analysis, and why you 
graded them so high, in fact the top risk at one point, and 
then why you dropped it down the prior--the next year to just 
plain max. That's awfully important.
    Now, Mr. Andrews, hopefully that's all available in terms 
of the risk analysis area, as well as what led--
disappointingly--I would say, to Andersen basically blessing 
the Enron documentation, the financial statements and 
everything of that nature. This hearing is focusing obviously 
on the destruction of documentation, and I'm not belittling 
that.
    But I am really concerned with the thought process that has 
gone into--resulting in all of this having taken place, and 
hopefully whatever it is that we can do to keep it from 
happening again. I know that people are aware now and whatnot, 
but it's just terrible, and can anyone--I don't know whether I 
have any time left. The red light is on. I was told they had--
--
    Mr. Greenwood. We're keeping very strict rules today. The 
gentleman from Florida has an additional minute. If he would 
like, he will get the same indulgence.
    Mr. Bilirakis. Can anyone explain, very briefly, in 1 
minute, why the risk analysis dropped from max plus to max?
    Mr. Baskin. I don't know the answer to that.
    Mr. Bilirakis. Does anyone have the answer to that? Who 
does that? Who makes the ultimate decision?
    Mr. Andrews. The way the process works, the engagement 
partner, the engagement team makes the initial assessment, and 
to the extent that the risk ratings are at certain levels--and 
in this case a maximum risk rating requires, then, the 
consultation with others in the firm, and that in fact is what 
occurred in this situation. As to why it changed from max star 
to max, I don't know.
    Mr. Bilirakis. So it goes back to Mr. Duncan again?
    Mr. Andrews. That's where the process begins, but then once 
he goes through the process, the engagement team completes its 
analysis. If it results in a risk rating at a maximum risk, it 
then requires further consultation. And that's in fact what 
occurred.
    Mr. Bilirakis. Ms. Temple, very quickly--I haven't gone 
into you at all--you're house counsel. Were you aware of this 
risk management rating? Have you been aware of it all along?
    Ms. Temple. To the best of my recollection, I learned about 
the level of risk management rating much later. I don't recall 
the exact time, but much later.
    Mr. Bilirakis. Much later after all the problems----
    Ms. Temple. After I----
    Mr. Bilirakis. You became aware of?
    Ms. Temple. [continuing] was initially consulted on 
September 28, and I don't recall exactly when I exactly learned 
about the risk rating. Probably sometime in November is my best 
recollection now.
    Mr. Bilirakis. Well, see, that's what looks bad, is you 
yourselves in your own minds, you've established a risk 
management rating, and you rate them as really bad--rated them 
as really bad guys; but then you continued on, and obviously it 
was for the money, I don't know. If there wasn't millions of 
dollars at stake, I guess we could sort of understand that.
    Mr. Andrews. Can I respond----
    Mr. Bilirakis. Well, very briefly, sir. I don't mean to tie 
up----
    Mr. Andrews. [continuing] very briefly?
    The risk process is designed so we assess the risk 
environment within a client, and as Mr. Odom said, we do this 
on all of our clients. And depending on what that risk rating 
is, it will influence various actions that we take on our 
audit; including, for example, because this was maximum risk, 
it required Mr. Duncan to consult with others in the acceptance 
of that client. It also drives certain other procedures we do 
in the course of the audit. So the risk rating is a very 
important part of helping us determine the scope of the audit, 
the consultation that occurs on an audit, and it has a very 
meaningful purpose in our audit process. And each year we go 
through a process of reassessing the risk of each of our 
clients in that regard, and it drives certain processes and 
audit procedures as a result of that. I mean, so it is a very 
important component of the audit process.
    Mr. Bilirakis. If you hadn't been a consultant also earning 
whatever the fee was for that, would you have--would you have 
continued on as an auditor, taking into consideration that 
very--the highest risk rating that existed?
    Mr. Andrews. Congressman, I do not believe our role as 
consulting played any part of our decision in reaching that 
conclusion.
    Mr. Greenwood. Time of the gentleman from Florida has 
expired. The Chair recognizes the other gentleman from Florida, 
Mr. Stearns.
    Mr. Stearns. Thank you, Mr. Chairman. Mr. Odom, I just--as 
I understand it, you have been relieved of your duties. Is that 
true?
    Mr. Odom. I am no longer the practice director for the Gulf 
Coast market, sir.
    Mr. Stearns. Say that again slower, sir.
    Mr. Odom. I am no longer the audit practice director----
    Mr. Greenwood. Perhaps you could bring your microphone a 
little closer, Mr. Odom, please.
    Mr. Odom. I am no longer the audit practice director for 
the Gulf Coast market circle.
    Mr. Stearns. And when did that change occur with your job 
description, or when were you relieved of that duty?
    Mr. Odom. It was announced in the same press release where 
Mr. Duncan was discharged.
    Mr. Stearns. Okay. And did they call you in and say to you, 
Mr. Odom, we are going to relieve you of your duties; you've 
been with the company since 1969?
    Mr. Odom. I did get a telephone call, yes, sir.
    Mr. Stearns. And who did the telephone call come from?
    Mr. Odom. Rich Corgill.
    Mr. Stearns. And who is Rich Corgill?
    Mr. Odom. He is the head of the U.S. Practice directors.
    Mr. Stearns. And what did he say to you?
    Mr. Odom. He told me that the firm had decided that they 
needed to make management changes in the Houston office and 
that I was one of the management changes.
    Mr. Stearns. And were you surprised?
    Mr. Odom. I was not surprised that the firm had decided to 
do something to demonstrate that they were being active in 
dealing with, obviously, the perception problems. I was 
disappointed.
    Mr. Stearns. Do you feel that you're a part of the problem 
and that's why you were let go and that's why you sort of did 
not protest or indicate that they were wrong and that you 
wanted to be a part of the proactive program to clean this up? 
Why did you just acquiesce so easily?
    Mr. Odom. I've been with the firm a long time, Congressman 
Stearns, and sometimes you have to trust other people's 
judgment. And you don't always have to agree with them, but you 
can trust their judgment.
    Mr. Stearns. In your position which they relieved you of, 
how many people worked--responded or worked for you?
    Mr. Odom. Actually, I didn't have any employees.
    Mr. Stearns. Oh, you just had a title?
    Mr. Odom. I just had a title.
    Mr. Stearns. Okay. So they just----
    Mr. Greenwood. Would the gentleman yield? I'll give you 
plenty of time. You know that.
    Mr. Stearns. Okay. Sure.
    Mr. Greenwood. Mr. Odom, did you say that they changed your 
responsibilities to demonstrate that they were making changes. 
Did they tell you what you did wrong?
    Mr. Odom. No, sir they did not.
    Mr. Stearns. Mr. Chairman, that's what I was going to ask. 
Well, if someone called me up and said they wanted to relieve 
me of a position, even if it was just a title position with no 
people working for me, I'd ask them why. And you never asked 
why?
    Mr. Odom. I asked what the reason was, and I was told the 
firm felt they needed to make some bold moves to regain 
confidence in the Houston community.
    Mr. Stearns. Is it true that you told our committee staff 
that some clients in the past had been upset that old or 
extraneous documents had been unnecessarily maintained and 
discovered during IRS and SEC inquiries? I mean, our staff 
indicated that you told them that.
    Mr. Odom. That's correct.
    Mr. Stearns. Is it also true you told the committee staff 
that with a high-profile client about to take a big charge, 
people will want to look at Andersen's files, people with, in 
your words, ``adverse interests to Enron and Andersen.'' Is 
that true?
    Mr. Odom. I think I said that was a possibility, yes, sir.
    Mr. Stearns. Now, based upon those two statements that you 
just admitted that you told the committee staff, and when they 
called you up, I find it implausible that you wouldn't say to 
them in a candid discussion, why--ask why you were being 
relieved and what the story was, and they were explaining it to 
you in certain code words, saying, hey, we're trying to--I'm 
not going to use the word ``cover-up,'' but there seems to be 
something going on here to see a man of your stature to be let 
go, you accept it mightily and to step forward for the 
company's benefit, and you step down, and now you're in a 
different--total different title, and you just acquiesce to it. 
It seems to me, based on what you said to the staff, that there 
seems to be something else out of mind, out of sight, going on 
here. Am I wrong?
    Mr. Odom. Yes, sir.
    Mr. Stearns. Okay. Tell me how I'm wrong.
    Mr. Odom. I don't know of anything out of mind, out of 
sight.
    Mr. Andrews. Congressman, could I----
    Mr. Stearns. Yes.
    Mr. Andrews. Since I obviously was involved in those 
decisions, I'm probably more appropriate to answer it, if you 
will allow me to. The actions that we took, that's announced in 
that press release, were really two separate actions. One 
related specifically to the document destruction issue and the 
action we took at that point in our investigation, which is 
incomplete as I've said, was to relieve Mr. Duncan of his 
responsibilities, dismiss him from the firm. Three other 
engagement partners were relieved of their responsibility but 
are still with the firm, certainly pending the rest of our 
investigation.
    The second action that we took was really not directly 
related to the document destruction. It was in fact an action 
we believed, as an organization, we needed to do to begin the 
process of rebuilding the trust in the Houston community, as 
well as a statement beyond Houston, externally and internally, 
that we are serious about getting this issue behind us and 
doing the things that we need to do.
    Mr. Stearns. Mr. Andrews, couldn't Mr. Odom have done it in 
his position? Why did his position have to be changed? Couldn't 
he have done this? He's a loyal employee.
    Mr. Andrews. Again, this was a judgment, we made that 
collectively; the management changes we made, we believed as an 
organization, were changes we needed to make to rebuild the 
confidence.
    Mr. Stearns. Mr. Odom, it looks like to us that the reason 
you were let go, and based upon the comments you told the 
staff, is these folks were out to work on the files, and here 
it is mid-October, and they've got all of this possibility of 
the SEC and the Justice Department and our committee and others 
coming down, that they wanted to make this adjustment, as you 
say, because of adverse interests to Enron and Andersen. It 
wasn't a salubrious effect. It was basically that they were 
trying to get rid of these files and to instigate a process to 
do it.
    And based upon what you say, wouldn't you agree that 
adverse interests were coming at Enron and Andersen and that 
that's why--using you sort of not as a scapegoat but somebody 
to say, well, we're changing things?
    Mr. Odom. I don't believe that to be true, Congressman 
Stearns.
    Mr. Stearns. Well, you also indicated that they're upset 
some old extraneous information was still being kept, dealing--
discovered during some SEC inquiries in the past, and they 
wanted to make sure that that information wasn't there either. 
So----
    Mr. Odom. That had nothing to do with Enron.
    Mr. Stearns. Yeah, no. But I'm just saying that we have 
here you being let go in early to mid-October when Andersen was 
trying to clean up their files, and it appears that it was less 
than ingenuous. That's my point.
    Mr. Odom. It wasn't early to mid-October.
    Mr. Andrews. Congressman, I was involved in that decision. 
First, January 15 was the date of the action. The management 
actions we took have nothing directly to do with the audit 
engagement itself. And so I'm not privy and I haven't seen the 
comments that you have there regarding Mr. Odom's testimony, 
but nonetheless, it has no core connection to that whatsoever.
    Mr. Stearns. Thank you, Mr. Chairman.
    Mr. Greenwood. The time of the gentleman from Florida has 
expired. Mr. Odom, have the firm's investigators who were doing 
the investigation, Davis, Polk, have they interviewed you?
    Mr. Odom. No, sir, they have not.
    Mr. Greenwood. Mr. Andrews, have they interviewed Mr. 
Bauer, Tom Bauer, the engagement partner?
    Mr. Andrews. I----
    Mr. Greenwood. Also put on administrative leave?
    Mr. Andrews. Again, I don't know all they have and all they 
have not----
    Mr. Greenwood. We understand they haven't. It just seems a 
little odd that you've taken this administrative action. You 
tell us today that you're busily engaged in getting to the 
bottom of this, and you've got a couple of big guys that you've 
laid off that you haven't even talked to yet.
    Mr. Andrews. Mr. Chairman, I do not know if our 
investigators have interviewed Mr. Bauer or not.
    Mr. Greenwood. Well, you know they haven't interviewed Mr. 
Odom. He just told you that.
    Mr. Andrews. Yes, he did.
    Mr. Greenwood. What are you waiting for?
    Mr. Andrews. Again, our counsel is performing the 
investigation. We commit to you that that will be a full, 
complete investigation. And we, Andersen----
    Mr. Greenwood. They're charging you by the hour and they 
haven't gotten Mr. Odom yet----
    Mr. Andrews. But we are not restricting in any way the 
scope of that investigation. We want it to be full and----
    Mr. Greenwood. Mr. Andrews, will you give us a list of all 
of the members of the firm who have been interviewed in this 
internal investigation by Davis, Polk and who you expect to 
have interviewed during the course of this investigation?
    Mr. Andrews. Well, we certainly will fully cooperate and 
provide a full reporting and accounting of our investigation, 
yes.
    Mr. Bilirakis. Mr. Chairman?
    Mr. Greenwood. I'm asking you a straightforward question. 
We would like a list of the people within the firm, for that 
matter outside the firm, who have been interviewed as part of 
this internal investigation that we thought you were going to 
tell us about today. And we would like a list of the 
individuals you anticipate interviewing in the course of your 
investigation, because it's obviously critical to everything 
we've spent the last 6 hours here doing.
    Mr. Andrews. May I have a moment?
    Mr. Odom. Mr. Chairman, may I clarify one thing?
    Mr. Greenwood. Mr. Odom, you wanted to say something?
    Mr. Odom. Yes. I did have an appointment to meet with 
Davis, Polk in New York a couple of weeks ago, and actually 
flew up there, and they were unable to meet with me. But I 
don't know whether that was their investigators or whatever.
    Mr. Greenwood. When was that?
    Mr. Odom. I think it was about 2 weeks ago.
    Mr. Greenwood. Mr. Andrews, have you completed your 
consultation?
    Mr. Andrews. Uh-huh.
    Mr. Greenwood. Do you want to say something?
    Mr. Andrews. Yes, yes. What I will do is, since Davis, Polk 
is conducting the investigation, I will talk with them as soon 
as we complete the hearing, and I will put them appropriately 
in touch with whoever from the committee to----
    Mr. Greenwood. And you'll direct--you're the client, you're 
paying them--so you'll direct them to provide us the 
information we're asking for?
    Mr. Andrews. I will direct them to immediately talk with 
you, and you request the information of them, and we'll make 
sure that that happens immediately.
    Mr. Greenwood. Thank you. Thank you.
    The Chair recognizes the gentleman, Mr. Green, for 5 
minutes. Pardon me, just yield for a moment.
    Mr. Bilirakis. May I have 30 seconds out of order?
    Mr. Greenwood. Sure.
    Mr. Bilirakis. I just wanted to follow up, Mr. Andrews, 
very quickly, on the work paper thing. You can see it's sort of 
sticking with me. Now, these papers are--you've requested that 
they be submitted from whatever your--the various offices are 
regarding the Enron situation. And they're filed in one central 
location; is that correct? Are they--is there a central 
location for all of this documentation in Houston?
    Mr. Andrews. Well, Enron was a very complex company in many 
geographical areas, and the work papers themselves, to the 
extent work is done in other offices, the work papers 
themselves would be maintained in the other offices.
    Mr. Bilirakis. In the other offices. They haven't been 
pulled into--all to one central location yet. Is that right?
    Mr. Andrews. Well, at this point in time, I believe they 
have, but normally--I thought your question was related to how 
do audit work papers typically get created and where are they--
--
    Mr. Bilirakis. Now, are they numbered? Are they lettered, 
numbered? Is there some sort of identification?
    Mr. Andrews. Well, an audit engagement file does have an 
indexing scheme and an order to it, yes.
    Mr. Bilirakis. They're numbered, Mr. Odom?
    Mr. Odom. Mr. Andrews and I are both old auditors. He can 
answer the question just as well as I can.
    Mr. Andrews. They are indexed, and there's a filing order 
to them and all that sort of thing; yes, we certainly capture 
the information of what files exist and what the descriptions 
are of those files.
    Mr. Bilirakis. All right. Thank you.
    Mr. Greenwood. The time of the gentleman from Florida has 
expired. The Chair recognizes the gentleman from Texas, Mr. 
Green, for 5 minutes.
    Mr. Green. Thank you, Mr. Chairman, and thank you again for 
the courtesies. Let me follow up on both Mr. Bilirakis--
Chairman Bilirakis's--the high-risk rating or higher rating for 
risk, I would assume, equates that Andersen has to spend more 
time with a client, then the higher the fees. Is that correct? 
Mr. Odom, Mr. Andrews? The higher the risk, the more time, if 
you're going to continue with a client, the more it's going to 
cost that client?
    Mr. Andrews. Congressman, as I said before, the higher the 
risk rating, it will require you or lead you to do additional 
procedures and consultation, which would be more time, yes.
    Mr. Green. So the higher--okay. So what Chairman Bilirakis 
said, that it obviously--if--even if it's in Enron, which is 
the seventh largest company, you know, it would be a 
substantial fee, because those fees have been talked about, you 
know, $52 million, a million dollars a week. Now, I know 
auditing was a small percentage of that, so to speak, compared 
to the consulting, but it was rated as higher. When was that 
done? When was that decision made on the higher--that Enron 
made--that it needed a higher risk rating?
    Mr. Andrews. Well, the risk rating process occurs annually, 
and the last----
    Mr. Green. Do you have it in a month--what month did it 
occur last year?
    Mr. Andrews. The 2001--which, of course, we never completed 
the audit--the documentation that at least I think you have 
been provided information--early February.
    Mr. Green. Oh, early February of last year. So that was 
also the discussion at one time--and I know this has been 
publicized--about a memo about whether continuing Enron as a 
client. So----
    Mr. Andrews. I think that's the right timeframe, yes, sir.
    Mr. Green. Let me go to some--and I'm sorry----
    Mr. Andrews. If I could clarify one point, though, in terms 
of the fees. Actually, the audit-related fees on Enron were $25 
million, essentially half of the total fee.
    Mr. Green. And then 27 for the consulting. Okay.
    Mr. Odom. Excuse me, Congressman Green--of that consulting, 
a lot of it is work that is typically done by the auditor, you 
know. So, I mean, correct me on this, Dorsey, but the SEC 
requires when you report fees in the matter that you're looking 
at them, that the top fee, the audit fee, be only the fee for 
the annual audit. So if the auditor, for example, does a 
statutory audit in the United Kingdom that is not part of the 
annual audit, that gets plopped down into consulting.
    Mr. Andrews. As do tax fees and comfort letter and 
registration statements.
    Mr. Green. Mr. Andrews, let me go back to--and again, like 
a lot of members, we have a lot of things we have to do, and 
then come back when it's our turn. I apologize for having been 
gone, but during--while I was gone, you mentioned something 
about the clarity of Enron's financial statements and that--I 
was told that--we've talked in our office to numerous Wall 
Street analysts who could not tell what was going on at Enron 
by looking at the financial disclosure statements signed off by 
Arthur Andersen. And is it Arthur Andersen's opinion or your 
opinion, and maybe you gave it earlier, that Enron's quarterly 
financial statements accurately reflected Enron's financial 
position? Is that what was said earlier in questioning, that--
--
    Mr. Andrews. Congressman, your question referred to 
quarterly financial statements?
    Mr. Green. Did their quarterly financial statements 
accurately reflect Enron's true financial position?
    Mr. Andrews. We don't audit the quarterly financial 
statements.
    Mr. Green. Okay. The annual financial statements, you know, 
the annual financial statements, all those partnerships that 
were--and I know partner--those--to take out liability is 
something that is not unusual in the industry, but yet Enron 
took what is not unusual and then shot the moon with it. In the 
annual financial statements, are you saying that those were--
that someone--even Wall Street analysts could tell the true 
financial position of Enron?
    Mr. Andrews. In terms of the Wall Street analysts, you 
know, obviously we would have to address that question to them. 
I don't know what they did or didn't understand. I would hope 
if they didn't understand them, then they wouldn't recommend 
investing in the stock----
    Mr. Green. That will be subject to another hearing that 
we----
    Mr. Andrews. Right. So I can't comment on what they would. 
The company's responsibility and ours is to make sure that 
those financials are presented and conforming with generally 
accepted accounting principles, which includes the basic 
financials and the disclosures as well. And at this point in 
time those financial statements made by the company have been 
restated and our opinions have been withdrawn. So that has 
since changed.
    Mr. Green. Starting in 2000, October of 2000, some folks on 
Wall Street actually started to figure out that there was 
something going on. And are you familiar with the story in the 
Wall Street Journal, ``Heard on the Street,'' in October of 
2000 from a James Chanos? Are you familiar with that?
    Mr. Andrews. Congressman, I don't recognize it, no.
    Mr. Green. The story cited this short seller named Mr. 
Chanos who began saying that in October of 2000, Enron's books 
were not clear. His position, obviously, has been borne out, as 
we know, from October of 2001. Maybe all of us should have read 
the Wall Street Journal closer in October of 2000. In his--I 
have never heard of any financial analysts I've spoken with 
with Enron that said they were--that their financial 
disclosures are easily understood. And that's--and I guess 
that's been reported widely, too, and I--that it was so 
difficult to understand Enron's true financial picture.
    Do you feel like, again, those annual statements reflected 
the true financial picture at Enron?
    Mr. Andrews. Congressman, again, our reports have been 
withdrawn now, so we don't have an opinion on those statements. 
But the point I would make is that Enron is an extremely 
complex company, and I think any complex company of that 
magnitude, the financial statements are going to be complex. 
It's hard to simplify complex issues and those disclosures can 
be improved. Can the accounting model be improved? Absolutely.
    Mr. Green. Again, those partnerships were signed off on at 
the time, and I know you've retracted that, but at some time in 
the past they were the typical way that Enron was doing 
business, I guess, and they were signed off. But I know that's 
been retracted.
    But let me go on to Mr. Odom and go back to the October 12 
e-mail that you received from Ms. Temple and----
    Mr. Greenwood. This will be your final question, Mr. Green.
    Mr. Green. Okay. Thanks, Mr. Chairman. And was it your 
testimony you had never received a memo in your 32 years with 
Arthur Andersen--because you said you started work in 1969--
that explained or denoted what Enron's destruction of documents 
policy was?
    Mr. Odom. This had nothing to do with Enron's destruction 
policy----
    Mr. Green. Well, no. With Arthur Andersen's policies.
    Mr. Odom. I do not recall someone sending me a memo saying, 
you know, here is a doc. link to our policies. Clearly, on many 
engagements and many training sessions, we've talked about what 
Arthur Andersen's policy was, because we try to teach our 
people to comply with our policy.
    Mr. Green. But you never received anything like that from 
the legal side of Arthur Andersen?
    Mr. Odom. No, sir.
    Mr. Green. And so you looked at it as advice, I would 
assume, from legal counsel?
    Mr. Odom. I looked at it. I didn't view this really as 
advice from legal counsel, no, sir. Somebody had sent me a doc. 
link. I knew Nancy was a lawyer, but I didn't take it as being 
legal advice.
    Mr. Green. Well, normally when a lawyer sends you----
    Mr. Greenwood. The time of the gentleman from Texas has 
expired. I see that the gentleman from California has arrived. 
Does the gentleman wish to inquire?
    Mr. Waxman. I do, Mr. Chairman.
    Mr. Green. Before my colleague has his time, it seems 
like--I'm glad our committee is going to continue this, 
because, you know, there are so many questions that are still--
haven't been answered, and I just appreciate the time today of 
this subcommittee and, Mr. Chairman, of the full committee, 
because obviously there's a lot that needs to be discussed.
    Mr. Greenwood. We'll be back. The gentleman from 
California, 5 minutes.
    Mr. Waxman. I want to follow up on the questions I asked in 
the last round. Mr. Odom, you indicated that with regard to the 
partnership LJM 2, there's a, ``private placement memorandum'' 
that details the names and identities of the secret partners. 
Mr. Odom, some press reports have said there could have been 
hundreds or thousands of secret partnerships. Can you tell us 
approximately how many secret partnerships Enron had?
    Mr. Odom. I do not know the number of partnerships.
    Mr. Waxman. And do any of the other witnesses have any 
answer?
    Mr. Andrews. I do not know the number.
    Mr. Waxman. Is it fair to say it's hundreds?
    Mr. Odom. I'm not sure what you mean by secret.
    Mr. Waxman. Partnerships.
    Mr. Odom. Partnerships weren't necessarily secret, but they 
did use a number of partnerships. Hundreds would be a fair 
statement. Perhaps more.
    Mr. Waxman. Perhaps more. Do you know, would it be as much 
as a thousand?
    Mr. Odom. I don't know.
    Mr. Waxman. Are there private placement memoranda for each 
of the partnerships that Enron had created?
    Mr. Odom. I don't believe so.
    Mr. Waxman. Okay. And I'd like to ask the chairman a 
question. Mr. Chairman, obviously this is a very important 
issue. We have a situation where I believe secret partners may 
have made a lot of money without being exposed to any risk. At 
the same time, shareholders and employees lost millions. And I 
understand that currently the committee subpoena may cover 
documents that identify some of the partners but not 
necessarily all of them, and I want to ask the chairman of the 
subcommittee and the chairman of the committee if they will 
subpoena the necessary documents to reveal the identity of all 
of the secret partners and make them available to all of the 
members of the committee.
    Mr. Greenwood. We certainly will, Mr. Waxman, and we'll be 
happy to work with you in that regard.
    Mr. Waxman. Thank you.
    Chairman Tauzin. Would the gentleman yield? Among other 
things, let me read you what we have already requested from 
Enron. A list of all Enron's SPEs, partnerships, other 
subsidiaries, a list of all the Enron officers, individuals, 
entities who hold or held equity interest in any Enron SPE, 
subsidiary or partnership----
    Mr. Waxman. If I could reclaim my time, my point is that we 
could look at the precise language of the subpoena better, but 
it will certainly be--if I understand Mr. Greenwood's 
statement, it would be the intent of the Republican leadership 
on this committee to get by subpoena all the necessary 
documents to reveal the identity of all the secret partners and 
make them available to the members of the committee.
    Chairman Tauzin. It's not only our intent. It's the working 
agreement I have with Mr. Dingell to make sure we get all of 
that information. We've requested it. We expect Enron to 
deliver it to us. They're in compliance right now. If it is not 
delivered, we will all have something serious to say about it.
    Mr. Waxman. Thank you. Do any of the witnesses know or have 
you heard discussions of the identities of any of the secret 
partners? Mr. Odom?
    Mr. Odom. I've seen a listing of some of the investors in 
some of the partnerships. I don't know that they're secret. 
There is a listing of some of the investors and some of the 
partnerships.
    Mr. Waxman. And from your recollection, would you give us, 
for the record, some of the names that you've heard of as 
partners?
    Mr. Odom. I don't recall the names, but many of them are 
names you will recognize in terms of retirement systems and 
things like that.
    Mr. Waxman. Andrew Fastow, a former Enron official, 
reportedly made $30 million from his role in these 
partnerships. Did other Enron or Andersen executives 
participate in or profit from these secret partnerships, and 
what can any of you tell us about the identity of these secret 
partners?
    Mr. Odom. It's already been disclosed, I believe, that in 
the Chewco partnership, an Enron employee named Michael Koppers 
had an interest, I believe in the LJM 2 prospectus. There are 
two other Enron employees who are mentioned as being part of 
LJM 2, ex-Enron employees, Mr. Glisan is one of them, and I 
don't know who the other one was. It could have been Mr. 
Koppers again. I'm certainly not aware of any Arthur Andersen 
people.
    Mr. Andrews. When you ask the question, you may not have 
intended it this way, but you mentioned Andersen investors. 
We're not allowed, obviously, to invest in our clients.
    Mr. Waxman. I understand. I said Andersen executives.
    Mr. Andrews. Oh, Andersen executives, as investors in----
    Mr. Waxman. Well, did any of the Andersen executives 
participate in or profit from these partnerships?
    Mr. Andrews. Congressman, no; we're not allowed to invest 
in our clients.
    Mr. Waxman. And do you have any information about those 
partners that were involved with Enron?
    Mr. Andrews. I'm not part of the audit engagement team, so 
I'm not familiar with the audit itself. It's my understanding 
that on the related party transactions, I think that is what 
you're referring to, that those particular investments, that 
the board took specific action, took exception to its policy 
and put in special oversight procedures related to that and to 
deal with related party transactions.
    I'm not familiar with the individual names and the 
individuals involved, but that's my understanding of what was 
done. And, of course, Andersen in no way would be an investor 
or anybody at Andersen would not be an investor in anything. 
We're not allowed to do that from an independent standpoint.
    Mr. Greenwood. The time of the gentleman from California 
has expired. We thank the witnesses.
    Chairman Tauzin. Would the gentleman yield first?
    Mr. Greenwood. The Chair yields a minute to the chairman.
    Chairman Tauzin. I want to tell Mr. Waxman also that our 
staff is attempting to interview the partners that we are aware 
of that had been mentioned here by the witness, and we're in 
the process of attempting to do that. We've written letters to 
them; investigators on both of our staffs are doing their work 
as we speak. So the gentleman should be aware of that as well.
    Mr. Waxman. And so you are involving the Democratic staff.
    Chairman Tauzin. Yes, sir. I think I made the announcement 
at the beginning of the hearing. Mr. Waxman, you should know 
that Mr. Dingell and I reached an agreement at the onset of 
this investigation that we would share investigative staff and 
consult with each other as we go through the process.
    Mr. Greenwood. Mr. Andrews, will you provide the committee 
with the interim policy that you've--we have that.
    Mr. Andrews. Do you have that?
    Mr. Greenwood. All right. Thank you. I want to thank 
witnesses. It's been a long day. You've been here for 5 hours. 
I'm afraid you might have to consider this practice, because we 
may have to have you back, because at the end of the day here, 
we still don't have evidence that suggests that Mr. Duncan, who 
did not testify, is a rogue employee of Andersen. We still 
don't have information from you that suggests that Mr. Duncan 
admitted to errors. We still don't have information that you've 
interviewed individuals who have implicated Mr. Duncan in 
ordering them to violate the policies of the company, and we 
still don't have any information as to what documents were 
actually destroyed at Mr. Duncan's orders. So we have a lot of 
information we need to gather from you, and we may need to call 
you back.
    Mr. Andrews. May I say something?
    Mr. Greenwood. Yes.
    Mr. Andrews. I just want to reiterate, as we are here 
today, our commitment to cooperate fully as your investigation 
is in process. When we have completed with that, we intend to 
share it with you. We will continue to share documents, we will 
continue to cooperate. And so I just want to make that clear; 
and we're working to recover any of these destroyed documents 
we can to provide for our own investigation, as well as to make 
available to you, the SEC, and other parties.
    Mr. Greenwood. Thank you, Mr. Andrews.
    Mr. Andrews. We intend to fully cooperate.
    Mr. Greenwood. And we'll need to cooperate with you not 
only when you've completed your investigation, but in the 
course of your investigation.
    All of that said, this hearing is now adjourned.
    [Whereupon, at 2:36 p.m., the subcommittee was adjourned.]
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