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HOUSTON, Texas (CNN) — Enron security guards were stationed on the 19th and 20th floors of the company’s building here Tuesday to prevent further shredding of documents, company lawyers said during a federal court hearing.
Former executive Maureen Castaneda said Monday employees were shredding documents as late as January 14, in spite of the company’s December bankruptcy filing that costs thousands of investors and employees their life savings.
In the wake of the reports of continued shredding, Enron lawyers said the company allowed FBI agents in the building to interview employees and that guards had been posted round the clock to prevent more document destruction.
Some 40 attorneys representing investors asked a judge to place federal marshals or an outside firm’s security guards in the Enron building to prevent shredding.
The lawyers also asked the judge to take possession of all documents relevant to the investigation into the collapse of the energy giant — including boxes of shredded papers they said company executives ordered destroyed.
It was also revealed in court that shredded documents were found in a wastebasket, which was turned over to authorities. It is not clear who conducted the search in which the papers were discovered.
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Castaneda said she took boxes of shredded paper home with her to use as packing material. She later realized the significance of the refuse. She recalled e-mails telling employees how to handle financial documents.
“One said our policy is not to destroy documents, given the threatening legal suits,” she told CNN. “And that’s what made me realize that I had more than just shreds.”
“It is an absolute smoking gun,” said Castaneda’s attorney, Paul Howes, referring to the shredded papers.
Howes is with Milberg, Weiss, a San Diego-based firm that specializes in class action suits. The firm also represents Amalgamated Bank, which lost about $17 million in the Enron collapse, and the regents of the California University System, which lost $144 million.
Castaneda told CNN on Tuesday that her former employer had become arrogant.
“There was a lot of arrogance at the company … to the point where you think you can lie to Wall Street and get away with it,” Castaneda said. “You can’t get more arrogant than that.”
Enron spokesman Mark Palmer told CNN the company told its employees in a company-wide e-mail October 25 to “retain all documents which include handwritten notes, recordings, e-mails and any other method of information recording.
“You should know that this document preservation requirement is a requirement of federal law, and you could be individually liable for civil and criminal penalties if you fail to follow these instructions,” the e-mail said.
Palmer said the company sent out four e-mails on the subject — the most recent one last week. Each one broadened the scope of what employees are asked to retain, he said.
Howes’ senior partner William Lerach said some of the shreds Castaneda took home contained references to “phony partnerships set up to inflate the profits.”
He called the reported document shredding “a horrible, horrible decision” and said the documents would be pieced back together.
“It’s always better to live with whatever the facts are, however bad they are, than destroy the evidence,” Lerach said.
House committee subpoenas coming
Ken Johnson, spokesman for the Republicans on the House Energy and Commerce Committee, said in a statement the allegations were “likely to be of interest to our committee” as well as the Justice Department.
“Making bad business decisions is one thing, but hiding or covering up bad decisions is another,” Johnson said.
“If it turns out it is true — that they were shredding documents while knowing inquiries were under way by Congress and the Department of Justice — somebody’s probably going to be in hot water.”
The House committee will issue subpoenas to executives of Arthur Andersen, the accounting firm that once handled the energy company’s finances.
According to committee sources, among those expected to be subpoenaed to appear at a hearing Thursday is David Duncan, a former Andersen partner who had been in charge of the Enron audit.
If Duncan is subpoenaed, Johnson said, he probably would exercise his right to protection against self-incrimination under the Fifth Amendment of the U.S. Constitution.
Duncan was fired after reports that he ordered the destruction of Enron documents. He said through his attorney that he was following the advice of in-house counsel.
Joseph Berardino, Andersen’s CEO, will also be subpoenaed, sources said, noting that both men indicated through their attorneys that they would not appear voluntarily.
Nancy Temple, an Arthur Andersen attorney, and Michael Odom, a risk management partner, were described by one source as “not reluctant” witnesses.
But they too will be subpoenaed because otherwise some of the information they have about Andersen could be considered privileged, the source said.
— CNN Correspondent Ed Lavandera and CNN Capitol Hill Producer Ted Barrett contributed to this report.

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