The board and then chairman of Enron, Mr Kenneth Lay, were "duped" by his two most senior executives, Mr Jeffrey Skilling and Mr Andrew Fastow, and by the company's accountants and its lawyers, a congressional committee was told yesterday.
The company's most determined internal whistleblower, Ms Sherron Watkins (42) also cast serious doubt on the veracity of testimony by Mr Skilling last week. Particular focus was on his contention that he was not aware of the nature of the controversial LJM partnership run by Mr Fastow. Ms Watkins is now Enron's vice-president for corporate development but was then a subordinate of Mr Fastow's,
Asked what she thought of the testimony, she bluntly quoted Mr Skilling's own comments: "If it doesn't make sense, don't believe it." these comments appeared in another context in an inhouse journal.
Ms Watkins spoke of a culture of "invincibility" inside the senior ranks of the company and of the "common knowledge" among executives of the purpose of the partnerships as vehicles for concealing liabilities. They believed, however, that they had been "blessed" by the company's lawyers, Vincent and Elkins, and auditors Arthur Andersen.
Ms Watkins attempted to warn the company chairman, Mr Kenneth Lay, in August, 2001, that the company could "implode in a wave of accounting scandals" at the time he was telling employees that growth of the company "has never been more certain". She also, it has emerged, urged him in another letter on October 30th that "we need to come clean" and disclose the heavy financial losses from the partnerships.
And she advised Mr Lay on how to shift blame to others, naming Enron's former chief executive officer, Mr Jeffrey Skilling, and chief financial officer, Mr Andrew Fastow, and chief accounting officer, Mr Rick Causey. She wrote that Mr Lay should "admit that he trusted the wrong people," that he relied on Mr Skilling, his hand-picked successor, and the other two "to manage the details".
Yesterday her evidence partly exonerated Mr Lay, insisting that he should have been warned by others of the impropriety of the key transactions. Even though alerted by several executives verbally, and by herself in writing and personally, she says, he "did not understand the gravity of the situation the company was in".
"I do believe Mr Skilling and Mr Fastow and two well-respected firms did dupe the board," she said.
Was it possible Mr Skilling did not know? she was asked. "No, not possible," she said. Mr Skilling had been very much an intense hand's-on manager who was deeply involved in Mr Fastow's work. Why had Mr Skilling resigned form the company last August? "My opinion is that he could foresee these problems and wanted to get out as far away from them as possible," Ms Watkins said.
Ms Watkins described how Mr Fastow had demanded that she be fired when he discovered that she had written to Mr Lay and insisted that her computer be turned over to him. But, on the advice of the head of human resources, Ms Cindy Olson, it was downloaded before it was handed over.
