Enron Sherron Watkins Testifies in Court

3/16/2006 Houston (AP)-- Sherron Watkins, the former Enron vice president who warned higher-ups the company was a house of cards ready to fall, testified Wednesday she discussed her concerns with founder Kenneth Lay only to learn months later that 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 told how she met with Lay after taking to heart his encouragement that Enron employees could bring any problems directly to him.

"He seemed surprised that these things could be problematic," the 47-year-old accountant told jurors about her Aug. 22, 2001, meeting with Lay, during which she assailed the veracity of crumbling 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 testified. She said she wanted to leave Lay with one question answered: How are they going to pay for it? "With loans, Enron stock?" she said. "If they're going to pay us from our shares, then I don't think we'd have a fact pattern that would look good to the SEC or investors." 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, adding that the business world in retrospect would consider Enron's considerable successes "as nothing more than an accounting hoax."

At that meeting, Lay "winced" when she read him comments she received from an unnamed fellow Enron employee who wrote her: "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." "I did most of the talking," she added. 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 that garnered her $17,000, transactions she acknowledged were not proper.

Watkins joined Enron in 1993, hired by Fastow after working for Arthur Andersen LLP and German trading conglomerate Metallgesellschaft in New York. She examined assets in the Raptors, run by Fastow's staff and created to hedge Enron investments, that were bleeding hundreds of millions of dollars at the company's expense.