Whistle-Blower Shifts
Focus of Enron Trial
By Carrie Johnson
Washington Post Staff Writer
Thursday,
March 16, 2006; D01
HOUSTON, March 15 -- Former Enron Corp. accountant Sherron Watkins told
jurors on Wednesday that she warned former chairman Kenneth L. Lay about "an
elaborate accounting hoax" that could bring down the company but that Lay
instead chose a path toward concealment and "disaster."
The mid-morning entrance of Watkins, who was named one of Time magazine's
persons of the year in 2002 for her role as a corporate whistle-blower, turned
heads at the defense table and in the crowded courtroom. Until now, most
witnesses in the seven-week-old government case have concentrated on the actions
of former chief executive Jeffrey K. Skilling. But her testimony marked a shift,
as prosecutors focused increasingly this week on the actions of Lay in the
company's final months.
Prosecutors contend that Lay misled investors and employees in a series of
conference calls and meetings designed to paper over problems and maintain the
stock price. Watkins's account came a day after a former Enron pipeline worker
blamed Lay for steep losses in his retirement savings account and a former
executive recounted how he confronted Lay during a meeting of top company
officials.
Watkins met with Lay in August 2001, sounding alarms about partnerships that
she said could lead the energy trader to "implode in a wave of accounting
scandals." Lay listened and "winced" as he read a line in her memo that called
Enron "crooked" and said it deserved to get caught. But, she testified, Lay
ultimately disappointed her by presiding over a whitewashed internal
investigation into "fraudulent" partnerships that put the company on a course
for bankruptcy.
Lay and Skilling face multiple fraud charges that could put them in prison
for the rest of their lives if convicted. The defendants could begin putting on
evidence as early as the end of the month.
Defense lawyers for both men had unsuccessfully sought to limit Watkins's
account to bar her from sharing opinions she had formed. U.S. District Judge
Simeon T. Lake III rejected that bid, saying it would keep Watkins on the stand
for only "about two minutes."
Watkins's direct questioning by prosecutors was peppered with numerous
tag-team defense objections. Under prodding from Skilling attorney Ronald Woods,
the judge three times instructed jurors that sometimes-inflammatory Watkins
memos were admitted against Lay, but not Skilling, whose sudden resignation had
triggered her warning memos to Lay.
That was an unusual turn in a case in which Skilling has been the primary
government target.
On cross-examination from Lay lawyer Chip Lewis, Watkins responded with
fiery, occasionally combative remarks. Lewis tried to show that Lay accommodated
her concerns and that he relied on auditors and lawyers at Vinson & Elkins
LLP, one of the most "preeminent legal institutions" in the country. "Not
anymore," Watkins said, referring to the firm's reputation.
Lewis also stressed that Watkins sold about $47,000 worth of Enron stock
during the same period as Lay. Watkins said her sales were "wrong" because she
knew nonpublic information about Enron's problems.
Skilling lawyer Woods worked to paint Watkins as a malcontent speaking beyond
her expertise and as a woman who has gotten rich by writing a book and charging
as much as $30,000 per speech on Enron's failure.
The day before, Johnnie Nelson, the pipeline worker, told the eight-woman,
four-man jury that he "lost everything" when the company filed for bankruptcy
protection in December 2001. He said he had believed Lay when, acting as chief
executive in October 2001, Lay told employees that the "underlying fundamentals
of our business are very strong."
Under cross-examination Tuesday afternoon, Nelson said, "We're not talking
about stamps and stationery, this is millions and millions of dollars. . . . Mr.
Lay was paid a lot of money to know the inner workings of the company."
George "Mac" Secrest, a lawyer for Lay, pointed out that Nelson's
recollection about the stock price and other issues was incorrect. The lawyer
insisted that Lay sold $70 million in Enron stock during that period to cover
bank loans -- and that he had not violated the law.
"He violated my trust, that's all I know," the blunt witness, who earned
$50,000 a year during Enron's heyday, shot back.
Lay also took indirect fire Tuesday from Vincent J. Kaminski, a mathematical
wizard and former Enron analyst who said he repeatedly warned executives about
risky business partnerships in the years before the company collapsed.
Kaminski testified that he finally worked up his courage to speak out at an
Oct. 22, 2001, internal meeting of about 100 of Enron's top officials where Lay
presided. "Well, I felt, you know, the company was threatened and I felt a duty
to speak up," Kaminski said. "I felt Enron should come clean."
The following day, Lay said in a meeting with all of Enron's workers that the
company's top executives were "unified" in their approach, one of the statements
prosecutors contend was a lie designed to ward off public scrutiny.
"Did you feel you came out of that room unified, Mr. Kaminski?" prosecutor
Sean M. Berkowitz asked.
"No, unless I was voted off this island," Kaminski replied.
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Washington Post Company