Enron whistleblower tells of 'crooked company'

updated 8:46 p.m. ET March 15, 2006

HOUSTON - The former Enron executive who privately warned company founder Kenneth Lay of impending financial doom in the fall of 2001 had another critical meeting with him Wednesday — as well as with former Chief Executive Jeffrey Skilling, a jury and a phalanx of lawyers in their fraud and conspiracy trial.

Sherron Watkins, the plainspoken former vice president whom Congress anointed as a whistleblower after the company’s collapse, repeated much of what she said then: Enron needed to come clean about potentially disastrous accounting tricks or face implosion.

In mid-October 2001, two months after her meeting with Lay, Enron announced massive losses, slashed shareholder equity by $1.2 billion and came under intense pressure from investors. What was once the nation’s seventh-largest company sought bankruptcy protection by year’s end.

Watkins, who has never been charged with insider trading, said Wednesday her knowledge prompted her to sell almost $50,000 in stock after her August 2001 meeting with Lay — and before Enron shares became worthless months later.

“No,” she told prosecutor John Hueston when he asked her if her stock sales were proper. “I had more information than the marketplace did.”

Watkins served to bolster prosecution allegations that Lay knew Enron was in financial turmoil when he claimed publicly that the company was strong in the fall of 2001. The government contends Skilling also lied about the company’s financial condition before he resigned.

The two defendants counter that there was no fraud at Enron, and that the company crumbled because of negative publicity and diminished market confidence.

Watkins, 47, has made a career as a public speaker about Enron and failed leadership, earning up to $30,000 for each of dozens of appearances, though she said “working at Enron was much more lucrative for me.” She helped write a 2003 book about Enron. She appeared in the 2005 feature documentary, “Enron: The Smartest Guys in the Room,” and now consults on corporate governance issues.

Even one of the trial’s female jurors told U.S. District Judge Sim Lake during jury selection on Jan. 30 that she admired Watkins’ courage for speaking up to Lay, but also wondered if Watkins might have taken part in what she assailed as wrong.

Watkins never took her concerns outside the company. She gained fame in January 2002 when a congressional committee leaked her memos to Lay outlining her concerns. She testified at a congressional hearing alongside Skilling the next month.

Kicking off an aggressive cross-examination, Lay lawyer Chip Lewis gave her a paperback version of her book, “Power Failure,” which he called a “housewarming gift.”

“I think I have a copy,” replied Watkins. Known at Enron for her use of colorful language, she was poised and sometimes animated as she deflected defense attempts to rattle her.

Watkins was an accountant for Enron’s former outside auditor, Arthur Andersen LLP, before she joined the energy company in 1993. She worked for various divisions, and by the summer of 2001, then-Chief Financial Officer Andrew Fastow was her boss.

At Fastow’s bidding, she examined a list of weak assets Enron wanted to sell that had been tucked into off-balance-sheet financial structures intended to lock in their value. But the structures, known as Raptors, were “under water” because they owed Enron hundreds of millions of dollars and contained only falling Enron stock to repay the debt.

The Raptors had been capitalized with funds from Fastow-run LJM partnerships, which had already recouped their investments plus profits.

“Accounting just doesn’t get that creative,” she testified.

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