WASHINGTON – Sherron Watkins, the Enron executive made famous by her 2001 memo on financial improprieties at the energy giant, accused two top company officials before Congress Thursday of duping then-Chairman Kenneth Lay and the board of directors about improper — and possibly illegal — partnerships that concealed over $1 billion in debt.
Watkins, a vice president for corporate development at Enron, was testifying Thursday under a "friendly subpoena" before the House Energy and Commerce subcommittee on oversight and investigations.
Describing an aggressive corporate culture tinged with fear, Watkins recounted how she first approached Lay in August about the problems that months later led Enron to make the largest bankruptcy filing in U.S. history on Dec. 2.
Watkins said that when she told Lay of her concerns, the chief financial officer, Andrew Fastow, wanted her fired and her computer seized.
Chief Executive Officer Jeffrey Skilling, Fastow and other executives "did dupe Ken Lay and the board," she said. "Mr. Skilling and Mr. Fastow are highly intimidating," said Watkins. "I think they intimidated a number of people into accepting" the partnerships.
Under questioning, Watkins also placed blame on Enron's auditor, Arthur Andersen, and Vinson & Elkins, a law firm representing Enron.
When it appeared that Fastow was being considered for promotion to chief executive, Watkins said she decided to go directly to Lay in hopes that the financial improprieties would be corrected.
Watkins' six-page memo dated Aug. 22, 2001, which she hand-delivered to Lay, was rich in detail about problems with the partnerships, with which she was familiar. She warned that the company could "implode in a wave of accounting scandals" around the time Lay was telling employees that growth of the company "has never been more certain."
After meeting with Lay in August and spelling out her concerns in detail, Watkins said, "Mr. Lay assured me that he would look into my concerns."
However, in response, Lay only asked Enron's law firm to investigate the matter, Watkins said.
"I was highly alarmed by the information I was receiving," Watkins said.
Months after her initial plea to Lay, Watkins recommended in an Oct. 30 company memo that Lay should say he wrongly trusted other executives and got bad advice from Andersen and Vinson & Elkins.
To rebuild investor confidence, Watkins suggested Lay be open about his involvement, or more importantly, "his lack thereof," in the problems that led, just over a month later, to the bankruptcy filing.
Ten Congressional Committees Probing Enron
Enron released an internal inquiry report earlier this month that faulted Lay and Skilling for failing to watch over the web of partnerships that were used to hide debts and inflated profits.
The Justice Department, the Securities and Exchange Commission and 10 congressional committees are probing Enron's collapse, which wiped out thousands of jobs and billions of dollars in shareholder equity.
House Energy and Commerce Committee Chairman Billy Tauzin praised Watkins for attempting to draw attention to her concerns inside Enron and that some inquiry within the company did result.
"But these were not enough to correct matters — indeed some action aimed to hide matters further from public view," the Louisiana Republican said in remarks prepared for the subcommittee hearing.
On Nov. 8, Enron did restate its earnings, saying it had overstated earnings since 1997 by $600 million.
"Ms. Watkins is not a 'whistleblower' in the conventional sense," said Pennsylvania Republican Rep. James Greenwood, who chairs the House Energy oversight and investigations subcommittee.
"She was — and is — a loyal company employee, who sought valiantly and, sadly, in vain, to get the people in charge to face the facts," Greenwood said.
Lay has refused to testify before Congress, invoking his Fifth Amendment right against self-incrimination at a Senate hearing on Tuesday. Doing the same last Thursday was Fastow, who reaped at least $30 million from the partnerships. Chief Accounting Officer Richard Causey and two other Enron officials also have taken the Fifth.
In a striking coincidence, Enron on Thursday fired Causey and Chief Risk Officer Richard Buy in a disciplinary action.
Skilling Attorney Attacks Watkins
Skilling attorney Bruce Hiler said none of Watkins' comments was based on fact.
"Everything Ms. Watkins said about my client is based on hearsay, rumor, or her opinion,'' he said.
Hiler slammed Watkins' Oct. 30 strategy note, saying: "Her memo is not the memo of a whistleblower, it's the memo of someone trying to initiate spin control and a scapegoating.''
Meanwhile, former Fed Chairman Paul Volcker, tapped by Andersen to review its internal procedures, told a Senate panel Thursday he did not think an international accounting standards group he belongs to had been influenced by soliciting a donation from Enron last year.
A memo written by since-fired Andersen partner David Duncan says Causey was interested in what sort of influence a donation would give Enron.
Volcker said Enron had agreed to give about half the $500,000 requested by the International Accounting Standards Board but the company had never responded to an invoice.
"I don't think there's been any undue influence," Volcker told the Senate Banking Committee.
Reuters and the Associated Press contributed to this report.