ENRON TRIAL: Whistle-blower takes stand

Former Enron Vice President Sherron Watkins gave dramatic testimony about warnings she gave to her former bosses in 2001.

BY MICHAEL GRACZYK, Associated Press

Sherron Watkins, the former Enron vice president who warned higher-ups the company was a house of cards ready to fall, testified Wednesday that she discussed her concerns with founder Kenneth Lay only to learn months later her job was threatened for speaking up.

Taking the stand at the fraud and conspiracy trial of Lay and former Chief Executive Jeffrey Skilling, Watkins said she met with Lay after taking to heart his encouragement to Enron employees that they could bring any problems directly to him.

"He seemed surprised that these things could be problematic," the 47-year-old accountant told jurors about the Aug. 22, 2001, meeting, during which she assailed the integrity of financial structures that were intended to lock in values of investments and assets.

The off-the-books structures, known as Raptors, were intertwined with partnerships run by then-Chief Financial Officer Andrew Fastow, who was Watkins' boss. Watkins said she feared the structures would harm the company because they owed Enron hundreds of millions of dollars and contained only falling Enron stock to repay the debt.

"Accounting just doesn't get that creative," she said.

She said she wanted to leave Lay with one question answered: How are they going to pay for it?

The meeting came in the wake of an anonymous memo she sent days earlier to Lay. She subsequently acknowledged her authorship.

"I am incredibly nervous we will implode in a wave of accounting scandals," she said, reading Wednesday from the memo hailed later by Congress as prescient. She also read that the business world in retrospect would consider Enron's successes "as nothing more than an accounting hoax."

At her meeting with him, Lay "winced" when she read him comments she received from an unnamed Enron employee(Links to an external site.)who wrote: "I wish we would get caught. We're such a crooked company."

That message, she said, "slapped him in the face more than anything else."

Within two days after her session with Lay, Enron sought advice "on the consequences of terminating you," federal prosecutor John Heuston told her.

"I found out in February 2002. It was very shocking," she said.

Watkins also said she sold some $30,000 in Enron stock at the end of August 2001, then two more blocks of stock in the first week of October. She acknowledged that the transactions, which garnered her $17,000, were not proper.

1. Is Sherron Watkins probably at at-will employee? Why does this question matter?
2. If Enron had fired Sherron Watkins, would she have had any recourse? Hint: Think about exceptions to the employment-at-will doctrine.