New York (Sept. 26, 2003) -- Federal regulators, using newfound authority granted them by the Sarbanes-Oxley Act, arrested a former Ernst & Young partner Thursday and charged him with obstructing justice by altering and destroying audit work papers.

Thomas C. Trauger, a former E&Y partner, was arrested by FBI agents on criminal charges for obstructing investigations by the Securities and Exchange Commission and the Comptroller of the Currency.

The SEC noted that this is one of the first cases of document destruction brought under the newly enacted accounting reform law.

Trauger, 40, allegedly tampered with audit work papers related to a federal examination of bankrupt consumer loan company NextCard's bank subsidiary, known as NextBank.

The SEC also brought proceedings against Trauger and former E&Y manager Michael Mullen, 33, and wants to bar both men from public company auditing. Another E&Y former senior manager, Oliver Flanagan, pleaded guilty to a separate complaint, it was announced Thursday.

"This is a bellwether day for the Corporate Fraud Task Force," said its chairman, Robert McCallum, who also serves as Acting Deputy Attorney General. "Today's actions mark one of the first instances in which prosecutors have been able to use an important weapon in the fight against corporate fraud given to us by Congress under the Sarbanes-Oxley Act of 2002 -- the ability to prosecute those who would seek to destroy, alter or falsify financial information and records. Today's plea and arrest should remind accountants and lawyers not only of their commitment to represent their clients professionally, but also of our strong commitment to enforcing the law."

In a brief statement, Ernst & Young said the actions of its former employees " were a clear and serious violation of firm policy and professional standards." The firm added that it conducted a thorough internal investigation into the matter and cooperated fully with federal investigators.

-- Tracey Miller-Segarra