Andersen's Main Enron Man to Turn Witness

WASHINGTON -- David B. Duncan, a central figure in the federal investigation into Arthur Andersen LLP and Enron Corp., has agreed to plead guilty in Houston on Tuesday and become a cooperating witness in the government probe, sources familiar with the investigation have said.

Duncan, Andersen's lead accountant on the Enron engagement, is expected to plead guilty to one count of obstruction of justice in destroying Enron-related documents last fall, after shareholders began filing lawsuits against the faltering Enron and the Securities and Exchange Commission opened an inquiry into the company's financial practices.

Duncan is expected to testify as a government witness against Andersen in a May 6 trial for alleged obstruction of justice in the document shredding. He is also expected to be an important guide in helping prosecutors unravel the complex off-the-books partnerships that hid Enron's debts and helped create the appearance of booming corporate health.

Duncan is the first figure in the investigation known to have entered into a cooperation agreement with prosecutors.

Andersen declined to comment on the expected plea yesterday, as the accounting firm began to lay off about 7,000 employees, more than a quarter of its U.S. workforce. The accounting giant has been struggling to conserve cash as clients and overseas affiliates defect.

Duncan's cooperation puts significant new pressure on Andersen officials, who are in the midst of negotiations with prosecutors in an effort to avert a criminal trial. The firm has also been trying to settle civil claims brought by former Enron employees and shareholders.

Andersen officials have been hoping that the government will agree to defer prosecution in exchange for an admission of wrongdoing and a period of probation. Prosecutors have publicly insisted that the firm enter a guilty plea, something Andersen officials balked at doing. Sources close to Andersen have said that prosecutors are willing to entertain the possibility of a deferred prosecution.

Duncan was fired by Andersen in January for allegedly orchestrating the shredding. He sat down with the Justice Department's Enron task force that month for two lengthy interviews in hopes of arranging a deal.

Courts have found that the government can show corrupt intent if it can demonstrate that a company is "flagrantly indifferent" to legal obligations or to informing employees of them. The government can also prove guilt if it can show that an employee, operating within the scope of his job, willfully acted to violate the law.

Duncan's most significant role in the investigation may be in helping investigators weigh any underlying fraud and securities cases that could be brought against Enron and Andersen. Enron executives came up with the partnerships in close consultation with the accountants, sources familiar with the work have said.