WASHINGTON, Feb. 14 (UPI) -- An accountant at bankrupt Enron Corp. made clear Thursday that she had alerted the company's chief executive officer about the firm's questionable accounting practices as early as last August.
Sherron Watkins, who remains a vice president of corporate development at the company which posted the biggest bankruptcy in U.S. history last year, told members of the House Energy and Commerce committee's subcommittee on Oversight and Investigations.
Watkins said her suspicions of Enron's accounting practices rose earlier last year when she was assigned to analyze the assets Enron expected to sell and how this would influence the financial position of her firm. She discovered that a considerable amount of assets were placed into a "special purposes entity" named Raptor, which Watkins thought belonged to an Enron partnership company named LJM.
Watkins had considered Raptor a financial safe haven, which would reduce the risk of Enron assets by fixing their value to Enron shares. The hedge was intended to protect Enron's assets, regardless of fluctuations in the stock market. But when reviewing Raptor, Watkins said she uncovered that the hedge had failed because of a significant drop in the assets' value. This put Enron in a bind as the U.S. Generally Accepted Accounting Principles (GAAP) prohibit firms from using their own stock to post a gain or loss on their income statement.
The Enron executive said she was horrified by Enron's impending financial implosion, and she told committee members that she consulted her colleagues about the hedged assets. But Watkins said no one was able to give her a sufficient answer.
She avoided confronting Enron's then CEO Jeffrey Skilling as well as its Chief Financial Officer Andrew Fastow about her concerns for fear of being fired.
After Skilling's departure, Watkins resorted to an anonymous letter mid-August to address her concerns to Kenneth Lay, who took over as CEO once again. After reporting her concerns in writing, Watkins approached top management directly, who advised her to contact Lay directly.
Five days later, she was able to talk with Lay about Raptor's financial situation, which has ballooned to over $700 million in bad debts to date. Following the meeting, Lay told her that he would look into the matter, and she left his office requesting a transfer in order to escape from CFO Fastow's supervision.
Watkins testified that Fastow wanted her out of Enron after he learned of her meeting with Lay.
Prior to joining Enron in 1993, Watkins was an auditor at Arthur Anderson LLP for eight years. Andersen was Enron's chief accountancy firm until the company filed for Chapter 11 last December.
