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Enron Employee Sherron Watkins Will Testify Before House Committee

Aired February 14, 2002 - 11:34   ET

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
DARYN KAGAN, CNN ANCHOR: The House Energy Committee getting ready to start its hearing today. Enron employee Sherron Watkins will be testifying before this House committee. We will be bringing you her testimony live as it happens. A memo that leaked late yesterday, Watkins told Kenneth Lay that the company should -- quote -- "come clean" and take steps to rebuild investor confidence. Watkins also wrote a letter to lay in August, warning about Enron's financial condition.

Let's bring in our congressional correspondent Jonathan Karl who will be watching this hearing very closely.

Jonathan, if there is a heroine or a hero in this whole Enron mess, it would appear to be Sherron Watkins, or at least her letters and memos would play her up as such.

JONATHAN KARL, CNN CORRESPONDENT: And that's certainly the way this committee sees her. The committees investigators have been telling us that this is the most important witness yet to come before Congress in this whole Enron scandal. They think Sherron Watkins played a central role in trying to prevent what was happening. And in the memo, you mentioned that the committee released late last night, this was a second memo.

We know about the August memo of last year, where Sherron Talked about how Enron would collapse amid a wave of accounting Scandals, clearly a prophetic memo. She went to Ken Lay again in October, October 30th, handing him a memo. I can read part of it, a very interesting part of it. She says, quote -- "Ken Lay and his board were duped by a COO" -- that would be Jeffrey Skilling -- "who wanted the targets met no matter what the consequences, and a CFO" -- that would be Jeffrey Fastow -- "motivated by personal greed, and two of the most respected firms, Arthur Andersen and Company and the law firm Vernon and Elkins, who had grown too wealthy of Enron's yearly business, and no longer performed their roles, as Ken Lay , the board and just about anybody on the street would expect as a minimum standards for CPA's and attorneys."

What's amazing about this memo is she is basically telling Ken Lay that he was getting duped. She is not blaming Ken Lay, but saying Ken Lay is getting duped by his top lieutenants, Andrew Fastow and Jeffrey Skilling, and this is obviously a warning that was not heeded. Ken Lay did not take her advice. Her advice on this memo, as it was in August, was to come clean with these accounting problems, tell everybody, recalculate the profits, and try to save the company by coming clean before it's too late.

KAGAN: And, Jonathan, with this memo, it's not she -- and this is to go off a point that you were saying -- it's not like she lets Ken Lay off the hook, but indeed she does point the fingers at Fastow and Skilling, and it's almost like she is trying to warn him, like, look, you guys, buddy, you are in hot water, and we need to do something, we need to do something fast, or there is big trouble on the way.

KARL: Yes, and she is trying to give him a roadmap out of this mess, at least that's what it appears from these memos. She's saying, look, you are being led down a wrong road by your top people, you need to wake up, because you are the one that's going to pay the price if you don't do something about this. So she trying to come to Ken Lay, it seems, almost as an ally of Ken Lay, saying do something before it's too late to help yourself, as well as of course to help your company.

KAGAN: Let's talk about her background a little bit. This is a woman who would understand the numbers, because her background as an accountant, and in fact, ironically, before she worked for Enron, worked for Andersen.

KARL: Yes, one of several figures in this whole situation that have ties both to Andersen and to Enron, but somebody that was clearly well aware of what was going on with these off-the-books partnerships that Andrew Fastow, the investigators say, was using to simply hide debt, to make Enron look like it was in much better fiscal situation than it was. She understood the minutia, understand what was going on with those couple of thousands of off-the-books partnerships that were located in places like in Cayman Islands.

KAGAN: All right, Jonathan Karl on Capitol Hill, once again, when Sherron Watkins begins to speak, we will show you that live here on CNN. I'm sure you'll be listening very closely.

Thank you very much.

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