SPENCER MICHELS: Sherron Watkins is the Enron employee who went to CEO Ken Lay last August warning him that accounting fraud could sink the company. She was showered with praise today by members of the House Energy and Commerce Committee.
SPOKESMAN: I think we should applaud her. It is never easy to be a whistle-blower.
REP. BILLY TAUZIN, Chairman, Energy & Commerce Committee: A witness today will talk about how she attempted to give leadership at Enron a last clear chance.
SPENCER MICHELS: Watkins, currently an Enron vice president, testified under a "friendly" subpoena, a willing witness. After taking the oath, she outlined her career. Trained as a certified public accountant, Watkins worked for Arthur Andersen, Enron's auditor, before joining Enron 1993. Last June, the company assigned her to work for Chief Financial Officer Andrew Fastow. That's when she said she learned that a partnership run by Fastow called Raptor had lost $700 million, and that the bookkeeping was suspicious.
SHERRON WATKINS, Vice President, Enron: I was highly alarmed by the information I received. I continued to ask questions and seek answers, primarily from former coworkers in the global finance group or the business units that hedged assets with Raptor. I never heard reassuring explanations. I was not comfortable confronting Mr. Skilling or Andrew Fastow with my concerns. To do so I believe would have been a job-terminating move.
SPENCER MICHELS: "Mr. Skilling" is Jeffery Skilling, then the CEO of Enron. He resigned last summer. Last week he testified that he knew about no financial improprieties.
SHERRON WATKINS: On August 14, 2001, I was informed of Mr. Skilling's sudden resignation, and felt compelled to inform Mr. Lay of the accounting problems that faced Enron. I met with Mr. Lay on the afternoon of Wednesday, August 22, 2001. The meeting lasted just over one half hour. I urge Mr. Lay to find out who lost that money. If he discovered that this loss would be borne by Enron shareholders via an issuance of stock in the future, then I thought we had a very large problem on our hands.
SPENCER MICHELS: Watkins said Andrew Fastow wanted her fired when he learned about the meeting.
REP. JAMES GREENWOOD, (R) Pennsylvania: Did you watch Mr. Skilling's testimony before this subcommittee last week?
SHERRON WATKINS: Yes, I did.
REP. JAMES GREENWOOD: Would you care to comment on how you reacted as you heard Mr. Skilling describe his awareness or lack of awareness or understanding of these transactions?
SHERRON WATKINS: Well, I would like to use Mr. Skilling's own words to describe what I thought about his testimony. He was interviewed by Enron's in-house newsletter in 2001, and in the interview, Mr. Skilling was asked, "What's the best advice you ever received," and his reply was, "if it doesn't make any sense, don't believe it."
SPENCER MICHELS: Republican Billy Tauzin asked about a second memo she wrote to Lay in October advising him to blame others for Enron's problems.
SHERRON WATKINS: I was providing this to Mr. Lay as a concept on public relations. However, I felt it was a truthful public relations strategy, and it was... It was something I felt should be... Should be said.
REP. BILLY TAUZIN: So... So the things you recommended that Mr. Lay say and do, based upon facts in this document that you believed to be true?
SHERRON WATKINS: Yes. I do believe that, that Mr. Skilling and Mr. Fastow, along with two very well respected firms, did dupe Ken Lay and the board.
SPENCER MICHELS: Florida Republican Cliff Stearns asked Watkins about Enron executive Cliff Baxter. Baxter was found dead in Houston two weeks ago of an apparent suicide. Watkins said he shared her concerns.
SHERRON WATKINS: I actually... The last time I spoke with Mr. Baxter was January 15 of this year. I phoned him to give him the heads-up that... That my memo had been discovered and was in the press, and that it mentioned that executives had warned Mr. Skilling. So I told Mr. Baxter that I mentioned him specifically, and I read to him over the phone exactly what I had written about him. And he said, "Well, Sherron, you're right. I was very concerned about these transactions," he said, "But I'll tell you what: If I had known there was anything illegal about it, I would have pushed it further."
SPENCER MICHELS: Iowa Congressman Gregg Ganske asked about the memos to lay last August.
REP. GREGG GANSKE: Did you keep a copy for your personal files?
SHERRON WATKINS: Yes, I did.
REP. GREGG GANSKE: Where did you keep them, at home?
SHERRON WATKINS: No.
REP. GREGG GANSKE: At work?
SHERRON WATKINS: No, in a lock box.
REP. GREGG GANSKE: So you were enough concerned about this, you wanted to put this somewhere where it couldn't be destroyed?
SHERRON WATKINS: Yes.
REP. GREGG GANSKE: Were you worried about your own personal safety?
SHERRON WATKINS: At times. I mean, just because the company was a little bit radio-silent back to me, so I didn't know how they were taking my memos or the investigation.
REP. GREGG GANSKE: Why would you be worried about your personal safety?
SHERRON WATKINS: Because it was the seventh- largest company in America.
REP. GREGG GANSKE: And you were dealing with a really powerful problem?
SHERRON WATKINS: Yes.
REP. BILLY TAUZIN: Will you agree to inform us immediately if, as a result of your coming forward to testify before this committee and your willingness to come forward to Mr. Lay with your concerns as you have, if any retaliatory action is threatened or posed or suggested in terms of your employment and your position with Enron?
SHERRON WATKINS: Yes, sir.
SPENCER MICHELS: The hearing ended late this afternoon. The attorney for Jeffery Skilling criticized Watkins' testimony, saying she had no basis in fact for her views.