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American Morning

Former Enron Exec Sherron Watkins Will Testify Today

Aired February 14, 2002 - 08:15   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 ANCHOR: Now on to the Enron hearings, which once again will take center stage on Capitol Hill this morning. Kenneth Lay, the former CEO of the company, will not be appearing. His appearance was canceled when it was learned that he planned to once again take the Fifth Amendment. But Sherron Watkins will testify today. She's the former Enron executive whose now famous memo to Kenneth Lay warned that Enron might, "implode in a wave of accounting scandals."

CNN's Tim O'Brien joins us now from the Capitol with more. Good morning, Tim.

TIM O'BRIEN, CNN CORRESPONDENT: Good morning, Jack. Good morning, Paula.

Well this is going to be, we think, an explosive day here. Sherron Watkins is expected to say that these secret partnerships, very controversial partnerships that Enron had set up, were no secret around the halls of Enron down in Houston. She also may be laying some blame for these controversial deals more with former Chief Financial Officer Andrew Fastow, who tried to have her fired, and also former CEO Jeff Skilling, perhaps less with another former CEO, Kenneth Lay, who testified earlier this week.

And, of course, the center of all of this will be that very explosive memo she sent to Kenneth Lay last August, warning that the company was about to go down. In her words, she was "incredibly nervous that we will implode in a wave of accounting scandals." How telling. Also, "We are under too much scrutiny and there are probably one or two disgruntled re-deployed employees who know enough about the funny accounting to get us into trouble." Elsewhere in the memo Ms. Watkins writes, "I realize we have a lot of smart people looking at this and a lot of accountants, including Arthur Andersen and Company have blessed the accounting treatment. None of that will protect Enron if these transactions are ever disclosed in the bright light of day." How prophetic.

And finally, "I firmly believe that the probability of discovery significantly increased with Skilling's shocking departure. Too many people are looking for a smoking gun." You may recall that Jeff Skilling resigned the top job at Enron only after six months there. Now law-makers may want to inquire about her motives here. Were they that she was shocked at what was going on, or was she perhaps more shocked that it was about to become public? She's been identified as a whistle blower. In some respects, she was a whistle blower. She did tell CEO Lay about this, but she didn't tell anybody else. And what did she do with her own holdings in Enron, if she had any, knowing the company was about to implode as she feared. Did she unload that stock? That might be insider trading. She'll certainly ask about that -- Jack.

CAFFERTY: It should be an interesting day, Tim, thanks. Tim O'Brien, live from the Capitol.

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