Now here’s a first.

In a truly bizarre twist to the Enron debacle, audit firm Andersen yesterday reported it had notified the SEC and the Department of Justice that employees disposed of “a significant but undetermined” number of electronic and paper documents relating to its audit of the now-bankrupt energy company. Andersen management said it suspended its current records management policy effective immediately. The Big Five firm also instructed all partners and personnel to retain existing documents until further notice.

In the wake of the fiasco, management at the accounting firm also asked former U.S. Sen. John Danforth to conduct an immediate review of Andersen’s records management policy and to recommend improvements. “Andersen’s suspended document policy required in certain circumstances the destruction of certain types of documents,” the auditor said in a statement. “In recent months, documents, including electronic files related to the Enron engagement, were disposed of or deleted.”

Andersen management went on to note that millions of documents related to the Enron audit still exist, and said the firm has successfully retrieved some of the deleted electronic files. “The firm is continuing retrieval efforts through electronic backup files,” Andersen management added, “and is continuing in its efforts to fully learn and understand all the facts related to this issue.”

You can bet the SEC will be doing the same thing. In a statement issued yesterday the Commission’s director of enforcement, Steven Cutler, said the destruction of Enron documents by Andersen was “extremely serious.” He also asserted that the SEC would not be deterred from its investigation, according to wire service accounts. “Destruction of documents is obviously an extremely serious matter,” Cutler said. “Documents are an essential ingredient in our investigations. The destruction of documents by Andersen will not deter us from pursuit of our investigation and will be included within the scope of our investigation.”

Most accounting firms keep their audit records for at least three to four years, Arthur Bowman, editor of the newsletter Bowman’s Accounting Report, told Reuters. He added this was the first time he had seen such a disclosure in the 22 years he has covered the industry.

Less than a month ago, Andersen Chief Executive Joseph Berardino told Congress that Andersen’s auditors made an error in how it accounted for one of Enron’s off balance sheet entities.

In a related story, the U.S. attorney’s office in Houston yesterday recused itself from the Enron investigation, citing ties to people affected by the Enron bankruptcy and the appearance of conflict of interest. Earlier in the day, Attorney General John Ashcroft recused himself from the Justice Department’s probe of Enron. Apparently, Enron and Enron executives contributed to Ashcroft’s campaign for Senate. A spokesperson for the White House also acknowledged that two cabinent members had been contacted by Enron executives over the past few months to discuss the company’s financial woes.

And to think this all started out as a simple accounting story.

CellStar Admits SEC Probe

So what gives with CellStar Corp., which provides logistics services to the wireless communications industry, reported that the SEC has requested information concerning the company’s restatement of its second quarter earnings.

In October, the Carrollton, Tex.-based company said it would restate earnings for the fiscal quarter ended May 31 to reflect accounting adjustments. “In October 2001, we received an inquiry from the SEC requesting information concerning the restatement of earnings for the quarter ended May 31, 2001,” the company said in a government filing. “We believe that we have fully responded to such request.”

In December, the company named a new chief financial officer–Robert Kaiser–to replace Austin Young, who retired at the end of the year. Young, 61, had come out of retirement to join CellStar as CFO in November 1999. He had previously served as a director and executive vice president (finance and administration) of Metamor Worldwide, Inc. Prior to that, he was senior vice president and CFO at American General Corp. Before joining American General, Young was a partner with KPMG Peat Marwick, where his spent 22 years.

Financing News

• Kmart said Thursday that it is reviewing its current and prospective liquidity position and business plan for the fiscal years 2002 and 2003. The company is also in discussions with its lenders regarding its existing–and potential–credit facilities. According to one published report, the embattled retailer is in early talks to secure a $1.5 billion to $2 billion asset-based loan.

• Best Buy Co. issued $350 million of 20-year subordinated convertible bonds in a private placement. Management at the electronics retailers said it would use the proceeds for general corporate purposes. The long-term notes were rated BB-plus by Standard & Poor’s, its highest junk grade, with a negative outlook. The bonds are not callable for five years, and holders may put the bonds to Best Buy after five, 10 and 15 years. The offering was led by Credit Suisse First Boston.

• Teco Energy, Inc. issued $400 million of three-year mandatorily convertible units in the private placement market. The $25 par value units were sold with a dividend of 9.5 percent and at a premium of 14.5 percent above the company’s common stock share price closing price on Wednesday.

The unrated issue was led by Goldman Sachs. They were also the ones who came up with “mandatorily.”