Watkins Depicts Fear at Enron
Former Enron Corp. Chief Financial Officer Andrew S. Fastow tried last fall to fire Vice President Sherron S. Watkins after she complained about the company’s accounting practices to then-Chairman Kenneth L. Lay, Watkins told a congressional subcommittee Thursday.
Watkins--whose warnings to Lay in August accurately predicted the energy giant’s collapse--also told lawmakers that it was “common knowledge” inside the company that questionable off-the-books partnerships were enriching Fastow to the detriment of shareholders but that employees were too frightened to sound alarms.
“The saying around Enron was: ‘Heads, Mr. Fastow wins; tails, Enron loses,’” Watkins said. Later, she added: “It was like an off-limits topic. You just didn’t even want to discuss it around the water cooler.”
In her first appearance on Capitol Hill, the 42-year-old accountant became the third Enron manager to point the finger at former Chief Executive Jeffrey K. Skilling, questioning the truthfulness of his claims that he was unaware of financial problems at the Houston-based company.
The company filed for bankruptcy protection Dec. 2, less than a month after restating earnings to account for previously unreported losses of $586 million from Fastow’s partnerships over the previous 4 1/2 years.
Separately, Enron’s acting chief executive, Stephen Cooper, announced Thursday that two executives criticized in an internal report had been fired. The executives--Chief Accounting Officer Richard A. Causey and Chief Risk Officer Richard B. Buy--failed to adequately oversee transactions with the partnerships, said the report by the special board panel. Causey and Buy each made millions of dollars by selling Enron stock in late 2000 and early 2001--when, documents indicate, they knew key partnership deals were on the verge of collapse and might have to be disclosed.
Members of the House Energy and Commerce Committee praised Watkins for courage and integrity in risking her job to speak up last summer, before Enron’s problems became common knowledge.
“All America thanks you for what you did,” said Rep. Cliff Stearns (R-Fla.).
In nearly four hours of testimony, Watkins painted a picture of indifference and intimidation inside the executive offices of the Houston corporation’s glassy towers as signs of trouble mounted.
She also repeatedly defended Lay, saying she did not believe he was aware of the accounting improprieties or understood their significance, although she faulted him for not moving faster to get to the bottom of the problem.
“It’s my humble opinion that he did not understand the gravity of the situation the company was in,” Watkins said. “I believed--and I still believe--that Mr. Lay is a man of integrity.”
After serving in various finance positions at Enron since 1993, Watkins began to work for Fastow in June, assisting in corporate development. Within a month, she said, she uncovered “alarming” problems with Fastow’s off-the-books partnerships, including the LJM and Raptor entities. By her estimate, the Raptors--which were created to cover potential Enron investment losses--had lost as much as $700 million. Enron was obliged to cover those losses by issuing stock to Raptor partnerships.
“It seemed to be common knowledge that Raptor losses were backstopped by Enron stock,” she said.
Shortly after Skilling resigned unexpectedly Aug. 14, citing personal reasons, Watkins wrote a memo to Lay, warning that the company would “implode in a wave of accounting scandals” because of the partnership structure.
When Fastow learned that Watkins had complained to Lay about the off-the-books partnerships he controlled, he reacted angrily, she said. “He wanted to have me fired,” Watkins testified. “He wanted to seize my computer.” She said Fastow’s reaction alarmed both Lay and Cindy Olson, vice president for human resources.
To appease Fastow’s demand for Watkins’ computer, Olson gave Watkins a new laptop and suggested that she transfer files from her old computer and delete any files she did not want seen. Watkins said Olson told her, “We’ll just hand him the hardware.”
Watkins also was transferred from Fastow’s department to work in the human resources department, where she helped draft a crisis management plan last fall that called for Lay to target Fastow and Skilling for the company’s woes.
A spokeswoman for Fastow did not return a phone call Thursday.
Watkins testified that she knew of at least 12 other Enron employees who expressed concerns in a companywide survey in August about Enron’s questionable accounting practices.
Although Watkins did not directly accuse Skilling of lying, she said his testimony last week was “not the whole truth.” She said it was not possible that Skilling was unaware of Enron’s problems or the details of the partnerships.
Skilling’s attorney, Bruce Hiler, refuted Watkins’ claims.
“Everything Ms. Watkins said about my client is based either on hearsay, rumor or opinion,” Hiler said. “She did not talk to my client. She has no basis in fact for her views. While Ms. Watkins is entitled to her opinions, she is not entitled to her own facts.”
Near the end of the hearing, Rep. Edward J. Markey (D-Mass.) told Watkins: “What you have done is really very courageous. You’re a hero. But ... I have a feeling this is just the beginning of a process for you in terms of the stress you’re going to be under.”
In other developments:
* Attorneys for laid-off Enron workers said the U.S. trustee overseeing the bankruptcy, Carolyn Schwartz, agreed to workers’ request that they be permitted to form an official committee in the case. That will give workers the ability to be heard separate from the main creditors’ committee, which is largely made up of institutions.
* The main author of the company’s internal report on its financial dealings resigned from Enron’s board. William C. Powers, dean of the University of Texas Law School, was appointed to the panel about four months ago to head the review.
“My role in this process has been completed,” Powers said.
*
Times staff writer Jeff Leeds contributed to this report.
