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American Morning

Stench Emanating from Enron Continues to Get Worse

Aired January 15, 2002 - 07:13   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.
JACK CAFFERTY, CNN CORRESPONDENT: The stench emanating from Enron continues to get worse. Congressional investigators have uncovered evidence that the company's chairman, Kenneth Lay, was told about possible accounting scandals months before the company's collapse and at the same time he was allegedly assuring stockholders everything was fine. An unsigned letter to Lay from an Enron employee said she was well aware that something was rotten in Houston.

CNN's Allan Chernoff has the story.

(BEGIN VIDEOTAPE)

ALLAN CHERNOFF (voice over): The letter to Chief Executive Ken Lay from an anonymous female Enron employee who appears to be well acquainted with the company's accounting and its arcane partnerships.

"It sure looks to the layman on the street that we are hiding losses in a related company. I am incredibly nervous that we will implode in a wave of accounting scandals. There are probably one or two disgruntled, redeployed employees who know enough about the funny accounting to get us in trouble.''

The letter was written in August, two months before Enron confessed its profits had been inflated. Congressional investigators believe the writer met with Ken Lay for an hour to discuss her concerns and that Enron later told its attorneys not to second guess the accounting advice of Andersen, the auditor that had approved Enron's books.

Andersen is working damage control, releasing an e-mail about the Enron audit from in-house attorney Nancy Temple to a partner at the Houston office, saying: "Consider reminding the engagement team of our documentation and retention policy.''

Included in that policy, ``Only final documents will be retained. Drafts and preliminary versions of information will be destroyed currently. Deletion of information from electronic files will be accomplished in such a way that precludes the possibility of subsequent retrieval by Arthur Andersen personnel or third parties.''

Temple has told Andersen she was referring to an audit that was in progress, not previous audits that were later found to be faulty. Staffers at the House Energy and Commerce Committee say Andersen destroyed documents as late as last November, after Enron had restated its financials and the SEC had begun a formal investigation, documents that should have been held indefinitely, according to accounting experts.

ALAN ANDERSON, AMERICAN INSTITUTE OF CPAS: Well, if the records were subject to subpoena and they are destroyed after the subpoena was rendered, that would be more than unusual. That would be illegal.

CHERNOFF: Andersen Chief Executive Joseph Berardino is fighting dearly to save his company's battered reputation.

JOSEPH BERARDINO, CEO, ARTHUR ANDERSEN: Andersen will have to change to restore the public's interest and confidence, and we are working hard to identify the changes we need to make.

CHERNOFF: Andersen was also the auditor that approved financials at Sunbeam, and Waste Management, companies that paid fines for crooking their books.

Allan Chernoff, CNN, New York.

(END VIDEOTAPE)

CAFFERTY: The "Washington Post" this morning reports that anonymous letter was written by Sherron Watkins, a vice president of corporate development at Enron. And she issued a statement through her lawyer that says, "For now, we're going to let the memo speak for itself."

Coming up over the next couple of hours, we'll have a report on how a former Enron employee is making ends meet and we'll talk to a federal regulator who lost his job after butting heads with Enron Chief Ken Lay.

Quite a story, Paula.

PAULA ZAHN, CNN ANCHOR: And we're going to be following it intensely here.

Thanks, Jack.

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