Executive called Enron deals 'accounting hoax'

Watkins plans to testify that partnerships were widely known about

February 14, 2002|By NEW YORK TIMES NEWS SERVICE

WASHINGTON - Sherron S. Watkins, the Enron executive who warned six months ago that the company's accounting practices could bring it down, plans to tell Congress today that Enron's questionable handling of partnership deals was widely known within the company, according to congressional investigators who have interviewed her.

Watkins, who in August warned Kenneth L. Lay, Enron's chairman, that the company would be found out to be an "elaborate accounting hoax," told Lay in a follow-up meeting in October that he needed to "come clean" and disclose the hidden losses from the partnerships.

The company restated its earnings Nov. 8, when it announced that it had overstated income by nearly $600 million during the prior five years, beginning a rapid series of events that led to Enron's filing for bankruptcy protection a month later.

Watkins is scheduled to be the only witness today before the House Energy and Commerce Committee.

Watkins spent more than three hours yesterday telling her story to investigators on the committee and is expected to testify that during an Oct. 30 meeting, Lay promised her that he would fire Enron's accounting firm, Arthur Andersen, and one of its primary law firms, Vinson & Elkins.

But the next day, Watkins has told investigators, Lay backed off that promise and said that he would establish a special committee of directors to investigate the company's problems.

In a memorandum Watkins turned over to Lay Oct. 30, which she has provided to investigators on the committee, Watkins said Lay was "duped" by other senior executives, including the former chief executive officer, Jeffrey K. Skilling, and the former chief financial officer, Andrew S. Fastow.

In the memo, she called both men "culprits" and warned that Lay "will be more implicated in this than is deserved" if the company did not restate its earnings and fire its accountants immediately. She also said that Lay relied on those and other executives to "manage the details" of the company's finances.

Last week, Skilling told the House committee that he was not aware that the company's partnership deals were used to conceal debts and inflate profits.

Some on the committee believe Skilling might have given false testimony, which Skilling's lawyer has denied. Fastow declined to testify before the same committee, exercising his Fifth Amendment right against self-incrimination, while Lay invoked the Fifth Amendment on Tuesday before the Senate Commerce Committee.

Lay was scheduled to appear today before the House Financial Services Committee, but that hearing was canceled yesterday.

Watkins, 42, is an Enron vice president in corporate development. Before she came to Enron eight years ago, she worked for Andersen, Enron's longtime accountant, which has come under harsh scrutiny for its role in approving Enron's troubled finances as well as for its admission that auditors shredded Enron-related documents after learning of government investigations into Enron.

By last summer, Watkins had been assigned to work under Fastow, Enron's chief financial officer at the time, who headed many of the hidden partnerships that made him more than $30 million but also played a major role in Enron's collapse.

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