Watkins Criticizes Lay for the First Time
By April Witt
Washington Post Staff Writer
Tuesday, February 26, 2002; 4:04 PM
Sherron Watkins, the Enron Corp. vice president who was the first person to raise concerns internally about the company's finances, sought to distance herself from former Enron Chairman Kenneth L. Lay, telling a congressional committee this morning that she was "incredibly frustrated with Mr. Lay's action or lack thereof" in the wake of her disclosures to him.
Her testimony, before the Senate Commerce Committee, came in concert with former Enron chief executive Jeffrey K. Skilling, who pointedly told senators, "I never duped Ken Lay."
In a remarkable scene that put Watkins, Skilling and current Enron President Jeffrey McMahon at the same witness table, Watkins for the first time was publicly critical of Lay. Skilling and McMahon shook hands as the hearing before the Senate Commerce Committee got underway this morning, but Watkins avoided looking at Skilling whom she has accused of misleading Lay.
During this morning's testimony, Watkins once again described her meeting with Lay on Aug. 22, 2001. At the half-hour meeting, she said she gave Lay memos she had drafted expressing her concerns about the company's accounting practices and reiterating her opinion that it was never appropriate for a corporation to use its stock price to affect the overall financial picture of the company.
At the end of the meeting, Watkins said she was certain that Lay would act on her recommendations. "I fully expected Mr. Lay to conduct a full investigation into my concerns. I was disappointed that such was not the case. I was incredibly frustrated by Mr. Lay's actions or lack thereof." She went on to say that "Enron had a brief window to rescue itself last fall, but we missed that opportunity because of Mr. Lay's failure to recognize or accept that the company had manipulated its financial statements."
Skilling listened passively while senators opened the hearing with sharp criticism of him and the company he led.
"Mr. Skilling, if you plan to tell this committee that you did not understand Enron's true financial condition, then you will need to explain why, why you failed to understand things that any diligent chief executive officer would have understood," said Sen. Jean Carnahan (D-Mo.)
But when it came his time to testify, Skilling was assertive. "I didn't lie to Congress or anyone else," he said in denying he was aware of the company's imminent demise or the ways in which it used partnerships to hide debt. He also denied having manipulated Lay. "I heard Ms. Watkins testify as to her opinion," Skilling said. "I have no idea what the basis was for this opinion."
In one particularly pointed exchange, Skilling was challenged by Sen. Byron Dorgan (D-N.D.) recalling a joke Skilling had once made comparing California during its recent energy crisis to the Titanic.
"On the Titanic, the captain went down with the ship," Dorgan said. "In Enron, it looks like the captain gave himself and other top executives bonuses . . . and then lowered himself in the life boat and said, 'Everything is going to be fine.'‚"
Skilling fired back, "I think that's a pretty bad analogy. I wasn't on the Titanic. I got off in Ireland."
Earlier this month, Watkins told the House Energy and Commerce subcommittee on oversight and investigations that she believed Skilling and former Enron executive Andrew S. Fastow were chiefly to blame for Enron's demise, while Lay did not comprehend the seriousness of the company's accounting problems.
"It is my humble opinion he did not understand the gravity of the condition the company was in," Watkins said earlier this month. Skilling and Fastow, on the other hand, "misserved" Lay, the company and its shareholders, she said.
She contradicted the sworn testimony of Skilling, who was president and chief executive of Enron for six months before resigning last August. Fastow was the chief financial officer who ran off-the-books partnerships that a special committee of Enron's board recently concluded were designed to inflate profits and hide losses.
Watkins compared Skilling and Fastow to the swindlers in "The Emperor's New Clothes," who convinced the emperor of "the fine material that they were weaving," adding, "And I think Mr. Skilling and Mr. Fastow are highly intimidating, very smart individuals, and I think they intimidated a number of people into accepting some structures that were not truly acceptable."
She said she felt she couldn't complain before August about the "alarming" accounting irregularities to Skilling or Fastow because she would have lost her job.
Her description of Enron's top officials before the House subcommittee closely followed a memo she gave to Lay last October. At that time, Watkins advised Lay to blame others for the company's troubles. She told the congressional hearing that she did that because she believes others are to blame.
Watkins said she sought a meeting with Lay, whom she called a man of integrity, after Skilling resigned suddenly, because she feared Lay would replace him with Fastow or with Richard Causey.
During the meeting with Lay, Watkins said, she told him about her concerns with the accounting practices of the Fastow-run partnerships. She testified that within weeks of beginning to work in Fastow's global finance unit, she realized that a group of partnerships known as the Raptors "owed Enron in excess of $700 million," a loss, she said, that "was going to be borne by Enron shareholders."
In contradicting Skilling, Watkins said that he was required to sign forms showing he had reviewed partnership transactions and that the approval process was "cast in stone." During his testimony, Skilling said he did not sign the forms and did not believe his signature was required.
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Washington Post reporter Susan Schmidt and the Associated Press contributed to this report.
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