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The Honolulu Advertiser
Posted on: Monday, March 31, 2003

New book tells story of Enron's downfall

By Kristen Hays
Associated Press

HOUSTON — The woman who warned former Enron Corp. chief Kenneth Lay of impending disaster before the company imploded acknowledges that had she shouted louder, or to the board of directors, someone may have really listened.

"Going to the board (of directors) might have changed the outcome," Sherron Watkins said.

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But Sherron Watkins, a former accountant, says she believed the company needed to solve its problems from within to survive, and she had hoped her warning to Lay was enough to prompt swift corrective action.

"Going to the board might have changed the outcome. But in my way of thinking, I wouldn't have thought to go to them until I see what Ken Lay does. When I saw what Ken Lay did, it was, like, too late to go to the board," she told The Associated Press in an interview at her Houston home.

The 43-year-old Texan never saw herself as a hero in a sea of greedy executives, nor is she portrayed that way in the newest book about Enron's fall, "Power Failure," to be released tomorrow. Written by Texas Monthly editor Mimi Swartz with Watkins contributing, the book weaves Watkins' nine-year career at Enron into a narrative that skewers former company leaders for nurturing a culture that valued riches while hiding debt, inflating profits and using accounting tricks that drove the company into bankruptcy in December 2001.

The book breaks no new ground in the Enron saga beyond offering various anecdotes from Watkins and others. But Watkins wanted to give Enron outsiders an inside view both of the company's downfall and of its mystique that made her and others stay so long.

"The motivation for doing the book, particularly with someone like Mimi Swartz, was to really let people understand why we all loved working at Enron, and what was exciting about it, even when you're uncomfortable about certain things," she said.

However, Watkins also described a constant pressure to network, impress, and keep focused on the next big deal.

While some praise her for warning Lay in an atmosphere that abhorred bad news, current and former workers still wonder why she didn't spread the word before the company crashed.

"I think she had a lot of courage to write that memo to Lay, but she is neither a whistleblower nor a hero in the eyes of Enron employees or shareholders," said Brian Cruver, a former trader whose book about his Enron experiences, "Anatomy of Greed," was published in August. "We had already lost our jobs and Enron stock was at 25 cents when Watkins' memo went public."

Watkins joined Enron in 1993 and worked in several divisions over the years. In summer 2001, she returned to finance, where she had started, and was once again on the staff of former chief financial officer Andrew Fastow.

There, she stumbled across complex partnerships backed by Enron stock supposedly created to hedge Enron investments that were bleeding hundreds of millions of dollars — and creating a financial time bomb as company stock began falling.

Watkins met privately with Lay about her concerns after then-chief executive Jeffrey Skilling abruptly quit in mid-August 2001. Watkins, who had been intimidated by Skilling, told Lay she thought Enron could survive a storm of criticism and bolting investors by coming clean and restating its financial statements. She didn't tell anyone else, believing Lay would handle it.

"There were days in the fall when I'd walk in the building and see people hustling about. They're walking around with no idea," she said. "It does make you feel a little guilty — should you tell them, 'Jump ship! Jump ship!' "

By mid-October 2001, she realized Lay didn't follow her advice and she gave up. She had sold $31,000 of her Enron stock in August 2001, sold an additional $17,000 worth later that fall and looked for another job.

She quit Enron in November 2002 and collaborated with Swartz on the book while becoming a regular on the speaking circuit.

John Dienhart, director of the Global Business Ethics Center at Seattle University, said Watkins never fit the mold of the "classic" whistleblower, who acts to promote some greater good beyond the company. "If she was focused on the good of the company and it was going down anyway, then it makes sense that she didn't follow through," he said.

While critical of Skilling and Fastow, Watkins initially appeared protective of Lay, telling Congress he was "duped." Now she says he was like a doting father who did not want to believe his daughter was a crack addict.

Fastow now faces a 78-count federal indictment alleging he masterminded schemes that made him rich while falsely inflating Enron's books. He is free on a $5 million bond. Several lower-level former Enron executives have pleaded guilty to or been indicted on fraud charges, but neither Lay nor Skilling have been charged and both have denied any wrongdoing.