Appearing before the House Energy and Commerce investigative subcommittee under subpoena, Watkins said Kenneth Lay and Enron’s board of directors were warned about financial problems, but were hoodwinked into believing that Enron’s partnerships were legal.
“I believe and I still believe that Mr. Lay is a man of integrity,” Watkins said today.
Watkins, speaking publicly for the first time about Enron, blamed former CFO Andrew Fastow, former CEO Jeffrey Skilling, and other top executives for using Enron’s partnerships in order to hide corporate losses and debts.
“They did dupe Ken Lay and the board,” Watkins told the House panel in her opening statement.
Committee Chair James Greenwood (R-Pa.) commended Watkins for acting “not as a whistle-blower in the conventional sense,” but as “a loyal company employee who sought valiantly” to compel Enron executives to correct its deceptive business practices.
Watkins became known as Enron’s “whistle-blower” for sending an anonymous six-page memo to Enron’s then Chair and CEO Kenneth Lay last August, warning him that Enron could “implode in a wave of accounting scandals.”
Rep. John Dingell (R-Mich.) praised Watkins’ integrity, calling her “an extraordinary, courageous woman, who has been a bright spot in an otherwise sorry and outrageous saga.”
She also told the investigative subcommittee that Enron’s partnerships were used to inflate earnings by transferring debt and losses to various partnerships which actually belonged to Enron.
Watkins blamed Arthur Andersen accountants for “blessing” these transactions in their audits. Watkins also blamed law firm Vinson and Elkins, which Enron had contracted to do an internal investigation, for not detecting any impropriety with Enron’s partnerships.
Watkins started working for Enron through its California Public Employee Retirement System, or CALPERS, partnership in 1993. From June until August 2001, Watkins worked directly for former CFO Andrew Fastow, who allegedly arranged many of Enron’s improper business deals.
During this time, Watkins told the House panel today, she became increasingly “alarmed” of the off-the-book partnerships created by Fastow and managed by several other executives.
Following the resignation of then-CEO Jeffrey Skilling, who testified before the House panel last week, Watkins decided to speak with others of her concerns about such partnerships.
Watkins also expressed concerns to friends and colleagues, including Enron CEO Jeffrey McMahon, Vice President of Human Resources Cindy Olsson, and Arthur Andersen auditor James Hecker.
Watkins said she felt that she could not confront Skilling or Fastow about the partnerships, because “Mr. Skilling and Mr. Fastow are highly intimidating.” She also said that she felt that if she had told Fastow about her concerns, it “would have been a job-terminating move.”
Watkins testified that Andrew Fastow wanted her to be terminated after she met with Lay personally on Aug. 22. Watkins said during that meeting “Lay assured me that he would look into my concerns.”
That was when Lay contracted Vinson & Elkins to conduct an internal investigation.
According to her testimony, after the SEC began an informal inquiry in October, Watkins told Lay “we need to come clean” and restate company finances showing losses from the partnerships.
Watkins also outlined a public relations campaign for Lay, saying he should “admit that he trusted the wrong people,” and should shift blame to Skilling, Fastow, former chief risk officer Richard Buy, and former chief accounting officer Richard Causey.
In a separate development today, Enron dismissed Buy and Causey, citing their involvement in the company’s off-the-book partnerships. Buy and Causey had appeared before the House committee last week with Andrew Fastow; all three invoked their Fifth Amendment protection against self-incrimination.