Tags: Enron | Whistle-Blower | Testifies | Congress

Enron Whistle-Blower Testifies to Congress

Thursday, 14 February 2002 12:00 AM

Sherron Watkins, who remains vice president of corporate development at the company that posted the biggest bankruptcy in U.S. history last year, told members of the House Energy and Commerce Committee's subcommittee on Oversight and Investigations about her concerns regarding Enron's accounting practices.

Watkins said she became suspicious earlier last year when she was assigned to analyze the assets Enron expected to sell and how this would influence the company’s financial position. She discovered that a considerable amount of assets were placed into a "special purposes entity" named Raptor, which Watkins thought belonged to an Enron partnership company named LJM.

Watkins had considered Raptor a financial safe haven, which would reduce the risk of Enron assets by fixing their value to Enron shares. The hedge was intended to protect Enron's assets, regardless of fluctuations in the stock market. But when reviewing Raptor, Watkins said she uncovered that the hedge had failed because of a significant drop in the assets' value.

This put Enron in a bind as the U.S. Generally Accepted Accounting Principles prohibited companies from using their own stock to post a gain or loss on their income statement.

In her Aug. 14 letter, Watkins asked CEO Kenneth Lay, "Has Enron become a risky place to work?"

"My 8 years of Enron work history will be worth nothing on my resume," she wrote. "The business world will consider the past successes as nothing but an elaborate accounting hoax."

Meanwhile, Watkins on Oct. 30 warned her former boss that he needed to "come clean" about his company's financial troubles and "admit that he trusted the wrong people."

In a two-page memo released Wednesday, Watkins outlined steps to save the Houston company. At the top of her list was a suggestion that Lay "be open about his involvement or more importantly, his lack thereof," by blaming Enron's questionable accounting practices in 2000 on his subordinates.

Among those targeted for blame were former Chief Operating Officer Jeff Skilling, Chief Financial Officer Andrew Fastow and Chief Accounting Officer Richard Causey.

The memo also suggested that Lay single out the company's accountant Arthur Andersen LLP, and its attorneys at Vinson & Elkins, and that he fire both companies.

She also wrote that Lay could then make a public statement that he was committed to staying with Enron "and returning the company to its former glory."

Watkins said she avoided confronting either Skilling or Fastow because she feared being fired.

After Skilling's departure, Watkins resorted to an anonymous letter in mid-August to address her concerns to Lay, who took over as CEO once again.

After reporting her concerns in writing, Watkins approached top management directly, who advised her to contact Lay.

Five days after she wrote the letter, Watkins talked to Lay directly about Raptor's financial situation, which had ballooned to more than $700 million in bad debts. Following the meeting, Lay told her that he would look into the matter, and she left his office requesting a transfer in order to escape from CFO Fastow's supervision.

Watkins testified that Fastow wanted her out of Enron after he learned of her meeting with Lay.

Before joining Enron in 1993, Watkins was an auditor at Andersen for eight years. Andersen was Enron's chief accountancy firm until the energy giant filed for Chapter 11 in December.

In other Enron developments:

Copyright 2002 by United Press International.

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Sherron Watkins, who remains vice president of corporate development at the company that posted the biggest bankruptcy in U.S. history last year, told members of the House Energy and Commerce Committee's subcommittee on Oversight and Investigations about her concerns...
Enron,Whistle-Blower,Testifies,Congress
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2002-00-14
Thursday, 14 February 2002 12:00 AM
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