Enron executive tells of silence, intimidation

WASHINGTON -- Enron executive Sherron Watkins said Thursday it was common knowledge at the company that partnerships were used improperly to hide debt and inflate profits but chairman Kenneth Lay was duped into acceptance and others were intimidated into silence.

Watkins, who wrote Lay a memo in August warning that Enron could collapse and later urged him to "come clean" to save the company, described a tense atmosphere in which few challenged top executives, especially Andrew Fastow, the architect of some of the partnership transactions.

"I did feel like a lone fish swimming upstream," Watkins told a House Energy and Commerce investigations subcommittee. She said she struggled last year to persuade Lay and other executives to fix the problems that would drive the company under.

Corporate conscience

In contrast to lawmakers' sharp, often skeptical comments during other Enron executives' appearances, Watkins was welcomed on Capitol Hill as a breath of fresh air amid the stench of the Enron case.

"You were the conscience of this corporation. You warned them. You are a hero," Rep. Edward Markey, D-Mass., told her.

Enron's bankruptcy last December was the largest corporate failure ever, throwing thousands of employees out of work, leaving their retirement accounts in shambles and causing investors around the country to lose billions of dollars as Enron stock became virtually worthless.

Watkins said that when she brought her concerns to Lay, calling Enron a "crooked company" during a half-hour meeting in August, "he winced" and promised to look into the problems. Still, she said, it appeared "he didn't understand the gravity of the situation."

"You're basically saying he didn't get it?" asked Rep. Billy Tauzin, R-La.

"Yes," replied Watkins.

Kelly Kimberly, a spokeswoman for Lay, said that Lay believed Watkins to be "sincere and credible" when she raised her concerns. "We are pleased that she stood up to a difficult situation," said Kimberly, responding to Thursday's hearing.

Repeatedly, Watkins' recollection of events clashed with those of former Enron chief executive Jeffrey Skilling, who testified to lawmakers last week that he knew nothing improper about the partnerships that investigators say hid more than $1 billion in debt, inflated Enron's profits and eventually triggered the company's collapse.

Watkins called Skilling "a very intense, hands-on manager" and said she "would find it hard to believe that he was not fully aware" that Fastow's partnerships were largely financed by Enron stock contrary to normal accounting practices.

She said she believed that Skilling and Fastow -- along with Enron's accounting firm, Arthur Andersen and its outside legal advisers -- "did dupe Ken Lay and board."

When discussing the partnerships with Lay, "they were swindlers in the emperor's new clothes discussing the fine material that they were weaving," she said of Skilling and Fastow.

She said a dozen or more executives knew the partnerships were improper and dangerous. Still, the subject was relegated to talk "around the water cooler" as people were intimidated by Fastow and Skilling.

Watkins said she, too, hesitated to take her concerns to Lay and initially raised her warning that Enron could "implode in a wave of accounting scandals" in an anonymous memo. But when she heard that Fastow might be promoted to replace Skilling, who was resigning, she asked to see Lay.