Enron executive warned chairman in August that 'hiding losses' threatened company

WASHINGTON -- Even as Enron Corp. Chairman Kenneth Lay boasted to employees of the company's growth, one of them privately warned him in August of the reckless practices that eventually brought down the energy-trading giant.

"I am incredibly nervous that we will implode in a wave of accounting scandals," the employee told Lay in a letter. A "veil of secrecy" surrounded Enron's partnerships, which were keeping huge amounts of Enron debt off the company's books, she said.

"It sure looks to the layman on the street that we are hiding losses," wrote the employee, who was identified by her Houston attorney as Sherron Watkins, Enron's vice president of corporate development.

She said several senior Enron employees "consistently and constantly" questioned the corporation's accounting methods to senior Enron officials, including Jeffrey Skilling, the chief executive officer. Skilling resigned in August.

In a telephone interview Monday night, Watkins' attorney, Philip Hilder, said Enron responded to the warning letter, but he would provide no details.

Reps. Billy Tauzin, R-La., who is chairman of the House Energy and Commerce Committee, and James Greenwood, R-Pa., released excerpts from the letter to Lay on Monday. The two lawmakers demanded from Enron all records relating to a review of the employee's allegations as part of the panel's investigation of Enron.

Around the time of the August letter, Lay was telling the 20,000-strong work force that growth of the Houston-based company "has never been more certain." Two months later, Lay was phoning President Bush's Treasury and Commerce secretaries seeking help for Enron as it careened toward collapse and its stock price slid.

Employees and retirees helplessly watched their life savings dissolve last fall because the company prohibited them from selling the Enron shares that comprised the bulk of their retirement accounts.

The company entered the biggest corporate bankruptcy in U.S. history on Dec. 2, leaving countless investors burned and thousands of employees out of work.

The Justice Department is conducting a criminal investigation of Enron. The Securities and Exchange Commission, which is examining in its civil probe the partnerships cited by Watkins in her letter, also is looking at whether the big banks that lent billions to Enron helped create the complex financial structure that led to its failure, The Wall Street Journal reported Tuesday.