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And it abruptly fired David Duncan, who managed the Enron account in Houston, saying he had "without any consultation with others in the firm" organized the destruction of documents as Enron's losses mounted in October. Seeking to put as much distance as possible between the home office and a wayward Houston branch, the company pointed out that all shredding had ceased once the SEC issued a subpoena in the Enron matter. As a former Andersen partner in Chicago told TIME, "The issue of document deletion is entirely dependent on when the organization was aware that there might be a liability issue. Liability begins once there is knowledge."
Which explains why things got worse--much worse--for Andersen a few days later, when it was revealed that officials at the company's headquarters in Chicago had discussed the questionable Enron accounting very early in the game--in a conference call last Feb. 5. Enron was no longer a problem that Andersen's Houston office had kept to itself.
Nor were the top Andersen officials worrying about the actions of some low-level, rogue Enron trader back on Feb. 5. What concerned the auditors that morning was how to account for losses piling up in an off-the-books partnership between the company and a firm called LJM. The manager of LJM was none other than Enron's chief financial officer, Fastow. Putting aside the Texas-size conflict of interest for Fastow--whose day job involved vouching for Enron's financial health--Andersen knew that Enron's debts to LJM were rising to a level that required public disclosure no matter who was in charge. Such a disclosure would have sent Enron's stock into a dive. But no disclosure was made in the company's next quarterly report. Why not? One memo of the Feb. 5 conference call noted that Enron "often is creating industries and markets and transactions for which there are no specific rules."
And yet Andersen's understanding of Enron's strange business practices was extensive enough that Andersen executives, during the same conference call, contemplated dropping Enron as a client. That would have been a kick in the teeth for the auditing firm: Enron was paying Andersen some $50 million a year in auditing and "consulting" fees--and officials said in the conference call that they envisioned billings doubling in the coming years. Ultimately, Andersen decided to stick with Enron because, according to an e-mail record of the call, "we had the appropriate people and processes in place to serve Enron and manage our engagement risks." That engagement ended late last week when, in a largely symbolic move, Enron fired Andersen instead.
In Washington, of course, the politicians weren't just firing Enron and Andersen; they were plucking them from their Rolodexes and sending back their gifts. Lawmakers of both parties--led by those in close contests this November--scrambled to give back hundreds of thousands of dollars in campaign contributions Enron employees had sprinkled across the political landscape last year. Just for good measure, lawmakers have launched seven separate Enron probes.