Enron Memo Warned of Financial Troubles

Sherron S. Watkins, a vice president of corporate development, wrote in a seven-page anonymous letter to Enron Chair and CEO Kenneth L. Lay sometime between Aug. 17 and Aug. 31., ”I am incredibly nervous that we will implode in a wave of accounting scandals.”

The memo was found by congressional investigators who are combing through thousands of documents relating to the Enron collapse.

The letter suggests that Lay and other executives knew about financial troubles prior to other employees and shareholders, and that this information prompted executives to sell their stock before the company collapsed.

Excerpts from the letter were released today by Rep. Billy Tauzin (R-Louis.), the chair of the House Energy and Commerce Committee, one of five congressional committees investigating Enron’s collapse. The Justice Dept., Labor Dept., and the Securities and Exchange Commission are also investigating Enron’s possible criminal and fraudulent activities.

“We are under too much scrutiny and there are probably one or two disgruntled employees who know enough about the funny accounting to get us in trouble,” Watkins went on to say.

The letter also said that other employees had asked several senior executives, including former CEO Jeff Skilling, about Enron’s accounting methods with regard to its investment deals and partnerships. In late August, Skilling resigned for “personal reasons.”

“Has Enron become a risky place to work? For those of us who didn’t get rich over the last few years, can we afford to stay?” Watkins wrote.

Thousands of Enron employees, who were restricted from selling the stock for six weeks during the stock plunge, lost billions of dollars, including money in 401(k) retirement plans.

Watkins also complained about the accounting methods used by Arthur Andersen, the accounting firm responsible for approving the Enron’s financial statements. Arthur Andersen announced today that it had dismissed one of its partners and taken disciplinary action against several others. Last week it was revealed that Andersen employees destroyed numerous Enron-related documents.

Watkins’s lawyer, Philip H. Hilder, told reporters that his client had worked for former CFO Andrew Fastow, whom she alleges used at least two partnerships to conceal Enron’s losses and boost its disclosed profits sometime between July and September. In September, Watkins requested to be “reassigned.”

After receiving the letter, Mr. Lay asked Enron’s law firm, Vinson & Elkins, to investigate several issues, but limited the scope to whether the letter contained new factual information, instead of a wider inquiry into Enron’s accounting practices. Vinson & Elkins reported that Enron had committed no wrongdoing.

Enron admitted in November that it used partnerships like those mentioned in the letter to overstate its profits by $586 million since 1997.

Meanwhile, UBS Warburg AG, a Swiss-owned investment bank, bought controlling interest in Enron’s gas and electric contract trading operation Tuesday following an all-night bidding session with Salomon Smith Barney, a subsidiary of Citigroup.

UBS Warburg will not pay Enron any cash upfront, but will pay the company 33 percent of its future profits.

The sale involves a 51 percent share ownership of Enron’s online trading unit, EnronOnline, which generated 90 percent of Enron’s reported $100.8 billion revenue in 2000.