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Report: Auditor told employees to destroy Enron documents

WASHINGTON (CNN) -- Days before bankrupt energy trader Enron publicly disclosed its financial problems, employees of its auditing firm, Arthur Andersen, were instructed to destroy most of their Enron-related material, according to Time magazine.

Congressional investigators told Time that a October 12 memo directed Arthur Andersen employees to destroy all but the most basic "work papers" related to their auditing of Enron. As a result, thousands of e-mails and other electronic and paper files related to the largest bankruptcy in American history no longer exist, the magazine said.

U.S. Sen. Joseph Lieberman, D-Connecticut, who leads a Senate committee investigating the Enron matter, said Sunday that Arthur Andersen and its employees could face serious legal jeopardy if the report of destroying documents is true.

"Arthur Andersen is a great company with a great name," Lieberman said on CBS' "Face the Nation." "That name is being sullied, and ultimately this Enron episode may end this company's history.

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"If this memo was what it looks like, I'm afraid that the folks at Arthur Andersen could be on the other end of an indictment before this is over."

Supervisors at Arthur Andersen repeatedly reminded their employees of the memo before November 8, when the Securities and Exchange Commission issued subpoenas for documents as part of its investigation into Enron, Time reported.

On Thursday, Arthur Andersen acknowledged in a statement that its employees had destroyed documents related to Enron, but it did not reveal the existence of the memo directing them to do so.

An Arthur Andersen spokesman contacted by Time declined to comment on the memo until the company completes an internal review, but sources close to the the firm confirmed the memo's contents, the magazine said.

Four days after the memo was issued, Enron announced a $618 million loss for the third quarter, triggering a plunge in its stock price. At its peak, the stock traded for $83 a share. It closed Friday at 67 cents per share.

Enron, once the seventh-largest company in the United States, filed for Chapter 11 bankruptcy in December. Many employees whose 401(k) retirement plans were invested in Enron stock were wiped out, but many top executives unloaded their stock before the bottom fell out.

Questions have arisen as to why Arthur Andersen, a respected accounting firm, did not discover or disclose Enron's looming financial meltdown when it audited the company's books.

In addition to the SEC and the Senate Governmental Affairs Committee that Lieberman chairs, the Justice Department and a host of other congressional committees also are investigating Enron.

More than 40 lawsuits also have been filed against the company, alleging that it failed to disclose key information to investors.




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