WASHINGTON — Accounting firm Arthur Andersen LLP said Tuesday it is firing the lead auditor of collapsed Enron Corp. and is putting three other auditors on leave as part of its inquiry into the destruction of Enron-related documents.
Andersen said it also is replacing the management of its office in Houston, where Enron is based. Four Andersen partners in the Houston office "have been relieved of their management responsibilities," the accounting firm said.
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The firm said it will fire any other employees found to have participated in the improper destruction of documents.
The Securities and Exchange Commission has been investigating Andersen's role in Enron's complex accounting, including questionable partnerships that kept about $500 million in debt off the energy company's books and allowed Enron executives to profit from the arrangements.
The Big Five accounting firm said it was firing the lead Enron auditing partner, David B. Duncan, and placing Enron auditors Thomas H. Bauer, Debra A. Cash and Roger D. Willard on administrative leave.
Partners removed from the Houston office are D. Stephen Goddard Jr., Michael M. Lowther, Gary B. Goolsby and Michael C. Odom.
"This was a painful decision but it was absolutely the right thing to do," Joseph Berardino, Andersen chief executive officer, said. "We are prepared to take all appropriate steps necessary to maintain confidence in the integrity of our firm."
Andersen disclosed Monday that an in-house lawyer spelled out the firm's document destruction policy for auditors on Oct. 12, four days before Enron announced third-quarter losses of hundreds of millions of dollars. The Andersen lawyer, Nancy Temple, e-mailed the policy to a partner in the firm's office in Houston.
Berardino testified to Congress last month that Andersen notified Enron's audit committee on Nov. 2 of "possible illegal acts within the company."
He did not mention Andersen's destruction last fall of thousands of documents related to Enron, which the SEC, the Justice Department and congressional investigators are seeking in their probes.
Even as Enron Corp. Chairman Kenneth Lay boasted to employees of the company's growth, one of them privately warned him in August of the reckless practices that eventually brought down the energy-trading giant.
"I am incredibly nervous that we will implode in a wave of accounting scandals," the employee told Lay in a letter. A "veil of secrecy" surrounded Enron's partnerships, which were keeping huge amounts of Enron debt off the company's books, she said.
"It sure looks to the layman on the street that we are hiding losses," wrote the employee, who was identified by her Houston attorney as Sherron Watkins, Enron's vice president of corporate development.
She said several senior Enron employees "consistently and constantly" questioned the corporation's accounting methods to senior Enron officials, including CEO Jeffrey Skilling. Skilling resigned in August.
In a telephone interview Monday night, Watkins' attorney, Philip Hilder, said Enron responded to the warning letter, but he would provide no details.
Reps. Bill Tauzin, R-La., who is chairman of the House Energy and Commerce Committee, and James Greenwood, R-Pa., released excerpts from the letter to Lay on Monday. The two lawmakers demanded from Enron all records relating to a review of the employee's allegations as part of the panel's investigation of Enron.
Around the time of the August letter, Lay was telling the 20,000-strong work force that growth of the Houston-based company "has never been more certain." Two months later, Lay was phoning President Bush's Treasury and Commerce secretaries seeking help for Enron as it careened toward collapse and its stock price slid.
Employees and retirees helplessly watched their life savings dissolve last fall because the company prohibited them from selling the Enron shares that comprised the bulk of their retirement accounts.
The company entered the biggest corporate bankruptcy in U.S. history on Dec. 2, leaving countless investors burned and thousands of employees out of work.
Enron was the nation's seventh-largest company in revenue, and its collapse has hurt both individual investors and big pension funds around the country.