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THE ENRON INQUIRY

Former Exec Says Enron Destroyed Documents

January 22, 2002|MEGAN GARVEY and LEE ROMNEY | TIMES STAFF WRITERS

HOUSTON — Enron Corp. shredded documents after the company came under federal investigation, attorneys for shareholders said Monday, and the energy company said it would review the allegations.

The claim that shredding took place in Enron's accounting offices was made Monday by a former Enron executive who was laid off from the company this month.

The executive, Maureen Castaneda, collected a box of shreddings and will be a witness for plaintiffs suing over stock losses in the Enron collapse, said attorney William Lerach, who represents a group of shareholders.

"Not just one document was destroyed, but it looks like hundreds of thousands were destroyed."

Lerach said he intended to raise the issue at a federal court hearing here today.

Castaneda, a director in Enron's foreign investments section, said in an interview with ABC News that she witnessed the shredding of documents that began around Thanksgiving and continued at least until she left the company in the second week of this month.

Enron's accounting firm, Andersen, previously acknowledged that thousands of documents related to Enron were shredded by its Houston office. But Castaneda is the first to say publicly that Enron destroyed relevant papers.

Paul Howes, an attorney working with Lerach, said text was legible in some of the shredded documents and included references to controversial partnerships such as Jedi II and Chewco. Losses by such off-the-book partnerships played a key role in triggering Enron's collapse.

Based on statements from witnesses, Lerach estimated that possibly hundreds of thousands of documents were destroyed.

"We are investigating the circumstances of the reported destruction of documents," Robert Bennett, a Washington attorney who is representing Enron, said in a statement issued late Monday.

Bennett said Enron had issued "several directives" in October to all employees saying that "all relevant documents should be preserved in light of pending litigation."

"If anyone violated those directives," Bennett said, "they will be dealt with appropriately."

Ken Johnson, a spokesman for the House Energy and Commerce Committee, said congressional investigators will look into the allegations.

"This whole sorry affair keeps getting uglier by the minute," he said. "It's one thing to make bad business decisions. It's something else entirely to try to cover up bad business decisions."

Howes said fired Enron employees were told to gather their work papers in boxes and turn them over to company officials, who went through them and shredded numerous documents.

He said the shredding began with the layoffs triggered by Enron's Dec. 2 declaration of bankruptcy, and accelerated during the Christmas and New Year's holidays. He said the shredded documents were dated from at least 1994 through Dec. 20, 2001.

Enron spokesman Mark Palmer said the company does not "have any knowledge of the material that the plaintiffs' attorneys are parading in front of the media." But he said that if the allegations prove true, the people responsible will be fired.

The company sent e-mails to employees on Oct. 25, Oct. 26, Oct. 31 and Jan. 14 instructing them to retain all documents dealing with "related-party transactions, SEC requests, or any Enron transactions or accounting for those transactions," he said.

The January e-mail was sent as a reminder after it was revealed that Andersen had shredded Enron-related documents.

"These e-mails were very specific that employees who did not follow these procedures were liable for civil or criminal penalties," Palmer said.

Palmer confirmed that Castaneda was an employee at Enron who left the company in a recent round of layoffs.

She was director of "foreign exchange and sovereign risk," analyzing currency exchange rates and the possibility that companies outside the U.S. would nationalize assets.

Phil Schiliro, chief of staff to Rep. Henry A. Waxman (D-Los Angeles), a senior Democrat on the House Energy and Commerce Committee, said that if documents were destroyed, it "raises the real possibility of obstruction of justice. We need to know if Enron is destroying documents, and if they are, learn what Enron is trying to hide."

Though many companies routinely shred old or sensitive documents, business experts expressed surprise Monday that Enron might have destroyed key records, particularly after the company became the target of numerous lawsuits and government investigations.

On Oct. 22, the company disclosed that the Securities and Exchange Commission had launched a preliminary inquiry into some of the company's partnerships.

"Under the circumstances, this could be a very serious issue," said Nicholas Economides, business professor at New York University's Leonard N. Stern School of Business.

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