Enron's Accountants Admit Discarding Documents - TheStreet

Updated from 5:08 p.m. EST

The scandal surrounding the collapse of once-mighty energy trader

Enron

(ENE)

rippled through the accounting profession and federal government Thursday.

One day after the Justice Department announced an investigation of whether criminal wrongdoing attended Enron's collapse, the firm responsible for auditing the now-bankrupt company's books said its employees had thrown out a "significant" number of documents and emails related to the case.

The

Securities and Exchange Commission

labeled the disclosure by Andersen "an extremely serious matter" but said it wouldn't deter a complete investigation of Enron's fall. And the chairman of the House Energy and Commerce Committee called for the prosecution of anyone who deliberately impeded the case.

"Anyone that destroys records to try to subvert our investigation should be prosecuted," said Republican Rep. Billy Tauzin of Louisiana, speaking through a spokesman.

Meanwhile, in Washington, Attorney General John Ashcroft recused himself from the Enron investigation after having received campaign donations from both the company and its chief executive. The move came after Ashcroft received a letter from Rep. Henry Waxman (D., Calif.) claiming the size of the donation from Chief Executive Kenneth Lay was greater than what is permitted by election laws.

Andersen, which had testified previously before a congressional subcommittee that it tried to warn Enron of possibly illegal accounting in its financial statements, said it notified the Justice Department and the SEC about the documents' disposal.

Andersen said its employees "disposed of a significant but undetermined number of electronic and paper documents and correspondence relating to the Enron engagement." The auditor said its document-handling policy, which it has suspended, sometimes required such documents be disposed of or deleted, and added that some of the files had since been retrieved. It is in the process of trying to retrieve others via backup systems, noting that millions of other documents related to the audit "still exist."

The accountant said it has suspended its current records management policy and told its employees to retain all existing documents "until further notice." It also asked Sen. John Danforth (R., Mo.), to review its records policy and recommend improvements.

The Justice Department, which confirmed the Enron investigation Wednesday, said "any and all responsibilities" that would be handled by Ashcroft in the case would be handled instead by Deputy Attorney General Larry Thompson. It also said Ashcroft wasn't involved "in any aspect of initiating or conducting any investigation involving Enron."

Ashcroft's recusal came as President Bush ordered a review of both pensions and corporate disclosure. Thousands of Enron employees have lost much or all of their retirement savings in the company's downfall.

Bush, who worked in the oil industry and has known Enron's chairman since he was governor of Texas, ordered the Treasury, Commerce and Labor Departments to recommend ways of reforming pension and 401(k) regulations to prevent a repeat of the Enron debacle.