Shredded Enron Papers Taken to Court

ByABC News

Jan. 22, 2002 -- An attorney handed over shredded Enron documents to a federal court in Houston today, claiming they were important papers company workers had attempted to destroy as recently as last week.

The attorney, William Lerach, has filed a class-action suit against the failed energy firm on behalf of employees and stockholders.

The presentation of documents to the court comes the day after a former Enron executive, Maureen Castaneda, told ABCNEWS that document-shredding continued at Enron's headquarters up until at least last week, despite federal subpoenas and court orders since last October forbidding the destruction of documents.

Castaneda, the former director of Enron's foreign investments section who was recently laid off by the company, said the shredding was done in an accounting office on the 19th floor of the company's Houston headquarters.

"I left the second week of January and the shredding was going on until the day I left, and I have no idea if it continues," said Castaneda, who worked across the hall from the accounting office.

In response to Castaneda's allegations, Enron spokesman Mark Palmer confirmed that today the FBI had been invited into Enron's headquarters in Houston to inspect the offices. He added that after "learning of the allegations last night, Enron immediately preserved the integrity of the site."

Today's court hearing was based on a previously-filed request to stop any potential document destruction at Enron's now-fired auditor, Arthur Andersen. The accounting firm startled observers by announcing on Jan. 10 that it had destroyed thousands of documents pertaining to Enron last fall.

Enron's own accounting practices have come under heightened scrutiny since the company's stunning October announcement that it lost $638 million in the third quarter of 2001 and was worth $1.2 billion less than it had previously claimed.

U.S. District Court Judge Melinda Harmon requested both parties involved in the hearing — the plaintiffs and Andersen — try to work out a solution to prevent the disposal of more papers. Harmon will hold a meeting with lawyers from both sides on Wednesday.

Enron E-Mail Forbade Destroying Documents

Castaneda says she became suspicious of the activity because of a pair of late-October e-mails from the corporate attorney reiterating company policy forbidding document shredding.

Enron has claimed it sent out four such warnings: on Oct. 25, Oct. 26, Oct. 31 and Jan. 14.

Read an Enron E-mail Warning About Document Destruction

The Associated Press has reported that in a court brief filed by Castaneda's legal representatives, she claims a "gather-review-shred" process started Oct. 31, the same date Enron acknowledged the Securities and Exchange Commission had begun a formal inquiry into the company's finances. Castaneda says the destruction of papers was continuing when she left the firm earlier this month.

Castaneda said she discovered the shredded documents when she was cleaning out her office and looking for packing material. She showed ABCNEWS boxes full of shredded documents dated from November and December, which she said she found in the hallway.

"I got these when I was leaving work, to basically use for packing material," she said. "I only took one box."

The word "confidential" can be seen on the shredded papers, which were densely packed into the box she showed ABCNEWS.

"A lot are accounting documents," said Castaneda. "You can tell because of the colors yellow and pink."

Also, Castaneda said she found shreds with references to some of Enron's off-the-books partnerships, which the company used to mask its financial problems. Destroying documents in the middle of a federal investigation could potentially bring obstruction-of-justice charges.

‘It Will Not be Tolerated’

Palmer, the Enron spokesman, added the company was giving "full cooperation in any investigation that DOJ [Department of Justice] might like to conduct. We believe that such an investigation is properly conducted by federal authorities, not plaintiff's counsel for the benefit of a lawsuit. We can confirm that DOJ and FBI personnel are on site conducting an investigation into allegations raised last night."

Enron attorney Bob Bennett told ABCNEWS that an Oct. 25 e-mail should have made the company's position clear.

"If anyone has disobeyed that policy or if anyone is discovered to have shredded documents, it will not be tolerated and severe action will be taken," said Bennett.

The e-mail tells employees to "please retain all documents" relating to two of Enron's limited partnerships, LJM1 and LJM2, and warns them, "you could be individually liable for civil and criminal penalties if you fail to follow these instructions."

In Washington, Stephen M. Cutler, director of enforcement for the Securities and Exchange Commission, which is conducting its own Enron investigation, indicated today that his agency could expand its inquiry to look into Castaneda's allegations.

"We have said previously that issues of document destruction that were aired publicly with respect to Andersen were going to be within the scope of our investigation," said Cutler. "To the extent that there was or is document destruction going on elsewhere, including Enron, that would be within the scope of our investigation as well."

ABCNEWS' Brian Ross, Ariane DeVogue and Jon Garcia contributed to this report.

ABC News Live

ABC News Live

24/7 coverage of breaking news and live events