As the Andersen partner who pleaded guilty to a felony charge of obstruction of justice, David B. Duncan will be forever remembered as the man who tried to stall a government probe by shredding thousands of documents relating to Enron Corp., the largest bankruptcy in U.S. history.
Last week, Duncan took center stage in the Andersen-Enron saga, agreeing to help the Justice Department investigate and prosecute executives from both firms who were responsible for Enron’s demise.
But for all the attention he has commanded, Duncan remains a mystery to all but a select group of co-workers and friends.
As the partner overseeing the Enron audit team, Duncan, 42, was a rising star within Chicago-based Andersen, handling the firm’s second-largest client. Now, Duncan represents a threat not only to Andersen and Enron, but also to the executives at both firms who are likely to become targets in the government’s criminal case.
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Duncan was present at board meetings. Duncan reviewed financial transactions. Duncan answered questions from Enron’s executives and dealt with their complaints.
In short, Duncan can recount details and name names as federal prosecutors seek to understand how debt was hidden and profits were inflated at Enron.
Duncan has good reason to be angry with the partners who run Andersen. In early January, Andersen announced that its employees in Houston had shred many Enron documents–employees who worked for Duncan.
On Jan. 15, Andersen said that it planned to fire Duncan. The firm issued a statement citing “improperly destroyed audit work papers,” “unethical behavior” and “gross errors.” Duncan and his lawyers have declined to comment. But others in the Houston office contend that they were acting on instructions from a lawyer in Andersen’s headquarters.
Andersen’s harsh firing announcement was designed to place the blame squarely on Duncan. But then Andersen abruptly changed its legal strategy, defending Duncan and saying firm executives didn’t believe he had committed a crime.
Last week, after Duncan’s plea deal, Andersen finally sent an e-mail to partners asking them to vote Duncan out of the firm. Results are expected by Wednesday.
In a Feb. 18 deposition by lawyers for Enron investors who are suing him over the energy trader’s collapse, Duncan was asked how he learned that he would be dismissed.
“Mr. Duncan, when Arthur Andersen terminated you, who informed you that you’d been fired?” one lawyer asked.
“My attorneys,” Duncan replied.
“No one has ever talked to you personally on behalf of Arthur Andersen to tell you, in person, that you’d been terminated due to document destruction?” another lawyer asked.
“That is correct,” Duncan said.
Now, as a government witness, Duncan is in a position to strike back against his former firm.
One might not have expected such a dramatic role for a small-town boy, or a young man intent on the fastidious profession of accounting.
Duncan was born in Lake Charles, La., and grew up in Beaumont, Texas, on the middle-class west side of town. Friends say his father died during Duncan’s sophomore year at Forest Park High School, where he graduated cum laude in 1977.
Even in those days, he was a “pencil pusher,” according to one member of his graduating class–quiet, studious and, while intelligent, neither outgoing nor particularly popular. He played no sports and was involved in few, if any, activities.
“I think the only thing that sticks out in my mind is that he isn’t the kind of guy who gives orders. He’s the kind of guy who takes orders,” said one friend who shared a ride to school with him every day during his sophomore year.
The friends from his youth sometimes have trouble remembering Duncan, as if he made little impression on them.
High school classmate Rodney Wager got to know Duncan during their senior year, often hitting the local hangouts or driving around town. Wager, who lives near Houston, has seen Duncan’s face almost nightly on the local news since January.
Never did he make the connection that the man on the screen once was his friend.
“I might have thought, `David Duncan’–but I didn’t think it was the same guy,” Wager said. “I didn’t put it together.”
Excellent student
After high school, Duncan enrolled at Texas A&M University, where he earned a degree in accounting. He joined the Alpha Tau Omega fraternity and cultivated friends within the accounting program, where he distinguished himself as a star.
“He was one of our best students,” said James Benjamin, head of the accounting program. “He was highly sought by the firms.”
When Duncan graduated in 1981, he had his pick of jobs among the accounting giants. He chose Andersen, a friend said, because it was the largest and most prestigious accounting firm in Houston.
He stayed for 11 years before leaving briefly to accept a job at Freeport McMoRan Inc., a natural resources conglomerate based in New Orleans. But Duncan did not enjoy Louisiana and returned to Andersen’s Houston office after only nine months. There, he quickly rose through the Andersen ranks.
In 1995, at the relatively young age of 35, he was made a partner.
Two years later, he was made the Enron engagement partner, one of Andersen’s most important jobs and a top assignment for a man still in his 30s.
At Andersen, Duncan was handsomely paid, enabling him to buy a $730,000 home in Houston’s upscale Memorial neighborhood, where he lives with his wife, Peggy, and three young daughters. As is common with many couples at Andersen, Duncan’s wife also worked at the firm before they married.
With success arriving right on schedule, it remains unclear why Duncan would sign off on Enron’s patently false financial statements.
Money, of course, would be a motive. He earned between $600,000 and $2 million annually leading the Enron auditing practice. Andersen expected its $52 million in fees earned last year from Enron to eventually double, and Duncan’s pay would increase commensurately.
The Enron bulldozer
And for a natural-born follower, it would be intimidating to deal with a beast like Houston-based Enron.
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Enron was as much a philosophy of business as an energy company. Executives either won everything or were discarded. Individual accomplishment counted far more than collegial effort.
The goal wasn’t just to make a lot of money quickly–it was to make a lot of money quickly by taking it away from someone else, former employees say.
Joe Short worked for the Andersen office in Houston for 18 months, leaving for Enron in 2000.
“Enron was filled with a bunch of Type A personalities,” Short said. “Everything was rugged individualism. People there would tend to run over you.”
Short said he is convinced that Enron’s aggressive executives overwhelmed Andersen’s accountants. At the time, Wall Street regarded Enron as the wave of the future. With Enron’s reputation for invincibility, any auditor who questioned the company was in the difficult position of arguing with success.
“My perception is shared by many employees at Enron,” Short said. “There is little doubt that [Enron executives] just said, `This is the way we are going to do it, and you really should sign off on this.”‘
Duncan was certainly inclined to do what he was told by people in authority at Enron.
Lawsuits, depositions and other documents stemming from the Enron case set out Duncan’s role in 1999, when Enron’s top executives grew irritated at an Andersen partner, Carl E. Bass. Bass had sent warnings to other Andersen auditors about Enron’s accounting practices, at one point describing them as having “no substance.”
One Enron-related lawsuit alleges Duncan joined with the energy trader’s executives to press “top Andersen management in Chicago to have Bass removed from the account.”
Three weeks later, Bass was gone.
Difficult future
Duncan has cut his deal with prosecutors. If he goes to prison, it almost certainly will be for a light sentence.
But people familiar with the process say that by agreeing to cooperate with the government, Duncan has changed his life forever, in ways minor and profound. For example, Duncan, an avid hunter, now is forbidden to own a firearm as a felon.
“The case is so complex and far reaching, it is going to take a Herculean effort to get through,” said Christopher Bebel, a former federal prosecutor.
For the next year or two, Duncan will meet for countless hours with the FBI and Justice Department lawyers, Bebel said.
Duncan must reveal to prosecutors everything about his past that could be used to impeach his testimony. When he takes the stand to testify, opposing lawyers will do all they can to discredit him as a liar.
“This is going to take a large toll on Mr. Duncan,” Bebel said.