Andersen 'debated Dumping Enron Account'

Arthur Andersen, the accountancy firm on trial for obstruction of justice, considered dropping Enron as a client in February 2001 because it feared the consequences of the energy firm's recklessness.

The concerns were disclosed yesterday by David Duncan, the former Andersen partner who resumed his testimony in a Houston court. Mr Duncan ran the Enron account and is expected to be pivotal in the government's case against the accountancy firm.

Prosecutors have accused Andersen of destroying Enron audit documents to thwart an investigation into the energy firm's bankruptcy.

He said a high-level meeting in February debated whether Enron, worth an annual $58m (£40m) to Andersen, should be retained. A memo from the meeting described Enron as "aggressive" and continually searching for "where the lines of acceptability are".

The accounting firm also questioned its future independence because fees from Enron, already its second largest client, were growing by about 20% annually. "It was not inconceivable they would continue to grow and reach very high levels, and I wanted to know from the group if there were some parameters where that would become troublesome from an independence standpoint and how we could manage that."

Senior partners told Mr Duncan that fees could eventually reach $100m a year without a problem as long as Andersen did not begin taking on management responsibilities at Enron, he said.

Mr Duncan, who has already pleaded guilty to the charges, said he was aware of the potential consequences of a federal investigation.

In trying to establish a motive for the shredding, prosecutors last week cited a case involving Andersen and waste haulage firm Waste Management. Andersen last year agreed to pay $7m in a settlement with the securities and exchange commission and undertook that there would be no repeat of the affair.

Mr Duncan, 43, said yesterday he was aware that Andersen had been on"probation" which meant any further problems would cause the SEC to come down hard.

He worked at Andersen for 20 years and before being fired in January was earning $700,000 a year.

Starting his testimony on Monday, Mr Duncan said bluntly: "I obstructed justice. I instructed people on the Enron engagement team to follow the document retention policy, which I knew would lead to the destruction of documents." He faces a prison term of up to 10 years.

Much depends on the interpretation of an email from in-house counsel Nancy Temple sent on October 12 reminding staff of the Andersen document retention policy. That called for the destruction of drafts, redundant papers and other extraneous materials.

Prosecutors complained yesterday to Judge Melinda Harmon about the conduct of Andersen's lead attorney, the flamboyant Texan Rusty Hardin. Mr Hardin described the government lawyers as "whiners" and said: "This is the most silly, thin-skinned motion that I can imagine."