David B. Duncan, former global engagement partner for Enron at the defunct audit firm Arthur Andersen, agreed to an injunction by the Securities and Exchange Commission to settle charges that he broke securities laws when he signed false and misleading audit reports.
Duncan consented to a settled civil injunctive action charging him with violating the antifraud provisions of the federal securities laws, and to a related administrative proceeding permanently suspending him from appearing or practicing before the SEC as an accountant. He settled without admitting or denying the allegations or findings.
The SEC alleged that between 1998 and 2000, Duncan was reckless in not knowing that the unqualified audit reports he signed on behalf of Andersen were materially false and misleading. The fraud risk assessment questionnaires prepared by the Andersen engagement team and reviewed by Duncan documented that Enron used "highly aggressive accounting practices," according to the complaint, and entered into unusual year-end transactions that posed difficult substance-over-form questions.
The SEC said that Duncan failed to exercise due professional care and the necessary skepticism required under generally accepted auditing standards. He did not ensure that the audit team audited certain transactions known as "prepays," "Nahanni" and the "Raptors" in accordance with GAAS, and failed to ensure that Enron properly presented and disclosed the transactions in its financial statements.
Three other Andersen partners, Thomas H. Bauer, Michael M. Lowther and Michael C. Odom, also consented to settle SEC allegations that they had each engaged in improper professional conduct in their work on Enron without admitting or denying the SEC's findings. They all have been denied the right to act or appear before the SEC.
