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Ken Lay and Jeff Skilling must be getting tired of these pesky former Enron executives who keep taking the witness stand at their trial. The latest was Sherron Watkins, who wrote a memo to ex-Chairman Lay in 2001 warning about coming trouble in the company's finances and testified yesterday that she saw all kinds of shady business practices during her time at the Big E.
Watkins told jurors that she went to work for ex-CFO Andrew Fastow in June 2001 and was assigned to examine assets Enron might sell. She found that Fastow's LJM side deals had already made profits on assets, leaving the Raptors financial vehicles owing Enron $500 million that they didn't have to pay. When Skilling resigned in mid-August, Watkins said her concerns increased. She said she trusted Lay and thought he didn't know what was going on, so she wrote her memo to him Aug. 15, 2001, and met with the chairman a week later. In the memo, Watkins wrote, "It sure looks to the layman on the street that we are hiding losses in a related company," and she expressed worry that Enron would "implode in a wave of accounting scandals." During her meeting with Lay, she said she urged him to "come clean" about Fastow's side deals; Lay, she told jurors, seemed surprised that such things could be problems. She said she asked Lay to investigate the problems without using law firm Vinson & Elkins and auditors Arthur Andersen, which had signed off on shady deals themselves, but Lay went with V&E for the investigation.
In October 2001, Enron announced it had "unwound" the Raptors, taking losses and a $1.2 billion loss in shareholder equity, which Watkins said was a bad way to handle the situation.
She said Lay lied to analysts in a conference call about the Raptors and LJM:
a blatant lie ... to say these could have been done with anyone else," Watkins said of the many overvalued Enron assets hedged in Fastow's financial vehicles. "You don't make statements like that, they're misleading."
As Watkins said in summary: "Accounting just doesn't get that creative."
Defense lawyers Wednesday tried to discredit Watkins by bringing up accusations of insider trading. She sold $47,000 worth of stock and admitted she had inside information the public didn't. Though she said yesterday she wishes she hadn't sold the stock, she did not admit she committed insider trading. "I'm not an expert (at committing crimes)," she told Lay's lawyer Chip Lewis. Watkins was not charged with insider trading. Lewis also asked Watkins about the time in late 2001 when Lay dumped tens of millions of dollars of Enron stock, trying to get her to acknowledge that he did so because he had to. "(If) you've got Aspen homes to sell, you've got other ways to raise cash," she responded.
Ron Woods, a member of Skilling's defense team, tried to make Watkins seem like she was exploiting her experience at Enron for personal gain — Watkins now makes a living speaking about leaderships failures at the company, earning between $20,000 and $30,000 for each speech. Woods implied that Watkins wants Lay and Skilling to be convicted so she can keep getting the speaking engagements, but she said she'd still be asked to talk about leadership failures whether or not the pair is found guilty.
The trial is adjourned until Monday. Next week, several former Andersen accountants and former Enron treasurer Ben Glisan Jr. will take the stand.
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