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Enron's Lay Met With Executive on 'Improprieties,' Lawyer Says

Accounting: Sherron Watkins was said to be assured the board was studying the matter. No findings were issued.


HOUSTON — Enron Corp. Chairman Kenneth L. Lay held several meetings in late October with a vice president who had urged him to clean up a series of "improprieties," her lawyer said in an interview Saturday.

Lay first met with Sherron S. Watkins, Enron's vice president for corporate development, for half an hour Aug. 22, shortly after she wrote him an anonymous letter detailing her fears that the energy company would "implode in a wave of accounting scandals." But Philip Hilder, Watkins' lawyer, said "there were also subsequent meetings in October."

At one of the meetings, Lay told Watkins that the Enron board had formed a committee to look into the accounting issues, Hilder said. But he declined to provide further details of the meetings, which have not been previously reported.

By October, the energy company was indeed beginning to implode. On Oct. 16, Enron announced an unexpected charge against earnings of more than $1 billion. On Oct. 22, the Securities and Exchange Commission began an inquiry. On Oct. 24, Chief Financial Officer Andrew Fastow took a leave of absence. On Oct. 31, the board announced the formation of the special committee, which has not yet issued any findings.

An Enron spokeswoman said Saturday that she had no details about the Lay-Watkins meetings in October.

Hilder also provided a better timeline for how the 42-year-old Watkins discovered and acted on the accounting irregularities, which involved so-called special purpose entities, some of which were based in the Cayman Islands, a haven for tax shelters.

An eight-year veteran of Enron, Watkins had spent less than two months working for Fastow when, in the course of reviewing which assets could be sold, she "stumbled across" details on the entities, Hilder said.

"The numbers just didn't add up," Hilder said.

He said Watkins didn't confront Fastow. "She felt he knew what was going on and, if she confronted him with it, that would have been the end of her at Enron," the lawyer said.

When Enron Chief Executive Jeffrey Skilling resigned Aug. 14 after only six months on the job, Watkins had her opening. Skilling's abrupt departure for "personal reasons" stunned the company, and Lay scheduled an Aug. 16 meeting at the Hyatt Regency here for all concerned employees. He invited them to submit questions in advance--anonymously, if they wished.

Watkins wrote a one-page letter, saying, "Skilling's abrupt departure will raise suspicions of accounting improprieties and valuation issues . . . . I am incredibly nervous."

The meeting with employees didn't produce the resolution Watkins wanted, Hilder said, so her next step was to call a friend at Andersen, Enron's accounting firm. "She went to him as a sounding board," Hilder said. "Here she feels she is hanging out all alone. These deals must have been looked at by the accountants, maybe the lawyers, the top company brass. She had some doubt that maybe she had gotten it wrong."

Watkins ultimately sought and was granted an Aug. 22 meeting with Lay, at which she gave him a six-page memo that detailed her questions and talked generally about the high level of employee worry. "I wish we would get caught," she quoted one Enron manager as saying in the memo. "We're such a crooked company."

Lay later asked Vinson & Elkins, Enron's principal outside law firm, to conduct the review. Watkins had urged him not to hire that firm, saying Vinson & Elkins had a conflict because they had provided opinions on some of the deals.

By the beginning of September, Watkins had transferred out of Fastow's office. On Oct. 15, Vinson & Elkins issued its report, which basically gave the special partnerships a clean bill of health.

Watkins' reaction to the report, the lawyer said, "is probably pretty obvious, given her feelings about them looking into the matter . . . ."

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