Accounting giant warned of criminal charges in Enron scandal

United States government prosecutors have warned accounting giant Arthur Andersen it faces criminal charges over the Enron scandal, it emerged today.

The firm has admitted it shredded documents and deleted computer files connected with its role as auditor of the bankrupt energy giant.

Today the Wall Street Journal reported officials from the American Department of Justice have met twice with Andersen’s lawyers and told them they may seek a criminal indictment against the accountants.

Criminal charges would have a devastating effect on the Chicago-based accounting firm, which has already hired hundreds of lawyers and offered a compensation package to Enron shareholders, staff and creditors worth more than £500 million.

Sources close to the case said the two sides were still locked in talks over Andersen’s activities and charges were not imminent.

An Andersen insider said: ‘‘It took us all by surprise.

‘‘It makes no sense to take us down. If they do that, no-one will get anything from us.’’

A task force inside the Justice Department is investigating Enron, how it was audited - and the off-shore partnerships it set up - with a brief to explore what criminal charges can be brought.

Charges being considering for Andersen involve obstruction of justice relating to the destruction of documents and deleting of computer files.

The charges would avoid financially complex trials where juries would struggle to understand charges and would be more likely to acquit.

But they would be likely to drive Andersen’s clients away and threaten the firm’s future, experts warned.

Douglas Carmichael, a professor of accounting at New York’s Baruch College, predicted it ‘‘would be devastating for chartered professional accountant firm whose stock in trade is their integrity’’.

He added: ‘‘It’s all they have as an auditor.’’

Enron’s administrators are also unlikely to support charges, as they want Andersen to continue trading so it can pay massive compensation settlements to creditors.

John Coffey, the chief lawyer with the bankruptcy trust set up to get cash for the creditors, told the Wall Street Journal he would be ‘‘extremely surprised’’ if charges were brought.

‘‘It’s akin to a death warrant,’’ he said.

The Securities Exchange Commission, the powerful regulator which oversees publicly companies such as Enron has also backed Andersen being allowed to continue working without being charged.

It has put pressure on the many groups suing Andersen, who include pensioners who lost retirement funds, staff who lost their jobs and shareholders whose investments became worthless, to reach a settlement rather than going to court.

Enron’s collapse last year has spread shockwaves throughout the American economy.

Millions of investors have been left with nothing to show for the cash they put into the stock-market’s former darling, which had hidden its massive debts offshore to boost its share prices and conceal its true financial position.

Lord Wakeham, the former British energy minister, stood aside as chairman of the Press Complaints Commission after it became clear he would have to fight to clear his name in America, as he was a member of the firm’s board of audit.