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Last Updated: Tuesday, 12 September 2006, 08:40 GMT 09:40 UK
Whistleblower recalls Enron crisis
Sherron Watkins
Watkins says her small-town background helped her in the crisis

The Enron employee who first challenged bosses about fraud at the firm says she feels Ken Lay's death has cheated the US people of justice.

Lay, Enron's former chairman, died in July, just weeks after he and fellow executive Jeffrey Skilling were found guilty of orchestrating a massive fraud at the failed energy business.

"There was a sense here in the US that justice was robbed," Ms Watkins says in BBC Radio 4's The Choice programme.

"Highly-stressed executives die early every day so there is no lesson learned in an early death, while there is in a long prison sentence."

Public praise

Sherron Watkins' life was turned upside down after she sent a memo to Lay in 2001, warning that the firm could "implode in a wave of accounting scandals".

She subsequently gave evidence against Lay and Skilling.

Ms Watkins was praised for her role in exposing the deception and greed at the heart of what was once America's seventh largest company.

I think there were so many villains in the Enron story that I was made into a heroine, rightly or wrongly

She says she could not have foreseen what happened to the energy firm, which was declared bankrupt in December 2001 after it was discovered that executives had used elaborate structures to hide millions of dollars of losses and debts.

"It has changed my life in ways I would never have dreamed," she says.

"I think there were so many villains in the Enron story that I was made into a heroine, rightly or wrongly."

An accountant who grew up in a small Texan town, Ms Watkins joined Enron's finance department in 1993 and soon found herself working for chief financial officer Andrew Fastow.

Andrew Fastow, former Enron chief financial officer
Watkins complained about Andrew Fastow's behaviour as early as 1996

"In Houston, Enron was the place to work. Everyone coveted a job at Enron. All the business schools held Enron up as the new age company."

But she soon became worried that, despite's Enron's rapid growth and profitability, all was not well with its accounts.

She suspected the value of key assets was being exaggerated.

Something amiss

"They would, almost without reason, pick an asset and come up with a reason why they needed to write it up. I thought it had crossed the line."

In 1996, Ms Watkins made her concerns known to Mr Fastow and the firm's auditors, Arthur Anderson, but says she was cold-shouldered.

"I got pushed back. In fact, I got reprimanded for sticking my nose in accounting matters when I was in the finance department."

The investment community started questioning Enron and the company started spiralling down

Ms Watkins considered leaving Enron at this point but, instead, moved to the company's international operation.

After a spell at the firm's telecoms venture, she returned to the finance department in the middle of 2001, again under Fastow.

Systematic fraud

It was at this point that she realised the extent of the fraud taking place.

Mr Fastow, who ultimately testified against Lay and Skilling, had set up a string of shell companies to do business with Enron.

Ms Watkins realised these actually served as vehicles to hide Enron's growing losses, totalling about $800m over two years.

Jeffrey Skilling, former Enron chief executive
Skilling's resignation made Ms Watkins suspicious

"What I stumbled across was hiding losses. It shocked me to my core," she says.

"As a trading company, your customers need to know you are financially healthy.

"If there is any hint that you may not be financially stable... your business dries up like water through a sieve."

She says her suspicions grew after Skilling unexpectedly quit the firm in August, prompting her to send her anonymous memo to Lay.


At this stage, Ms Watkins says she was "incredibly naive, to the point of stupidity" about his knowledge of what had been going on.

She says the meeting, which led to an internal inquiry into Enron's finances which she says was a "whitewash", changed her perceptions.

"[Lay] was a little incredulous that anything could be wrong. He pointed out that none of these transactions were hidden and that the board knew all about them."

The dark side of innovation is fraud

Enron then tried to marginalise her, but its attempts to explain away losses of $600m as a one-off event spelled the end for the firm.

"The investment community started questioning Enron and the company started spiralling down," Ms Watkins says.

Dangerous culture

Enron's free-spirited, aggressive corporate culture contributed to its downfall, Ms Watkins feels.

"There is always a dark side to a strength. The dark side of innovation is fraud. You push your employees to constantly innovate, they finally get backed into a corner where they become too creative."

Despite being seen as a heroine, Ms Watkins says she had plenty of regrets.

Man polishing sign outside Enron's headquarters in 2001
Enron's collapse caused shockwaves across America

She wishes she had not sold $47,000 worth of Enron shares in the autumn of 2001, when she was aware of its dire financial problems.

This decision was strongly criticised.

She also thinks she could have intervened sooner, limiting the damage.

"I should have made a bigger deal of the problems I saw in 1996. In 2001, when I found the fraud, I should have taken a breath and got more people to go with me.

"Ken Lay dismissed me as one lone voice, but if there had been three of us sitting there, who knows what might have happened."

You can hear Sherron Watkins interviewed by Michael Buerk in The Choice at Radio 4's Listen again page. The programme was broadcast on Tuesday 12 September.


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