Enron Worker Warned Lay of 'Accounting Scandals'

Jan. 15 -- A high-level official at Enron warned CEO Kennneth Lay about an impending disaster at the now-bankrupt firm months before the company went under, according to a letter made public on Monday.

The memo, sent to Lay in August by Sherron Watkins, Enron's vice president of corporate development, expresses concern that the energy trading company "will implode in a wave of accounting scandals," and raises further questions about Lay's knowledge of his company's inner workings.

Read the Letter from Sherron Watkins to Kenneth Lay

Watkins took a confrontational tone in her note, beginning with a pointed question: "Has Enron become a risky place to work? For those of us who didn't get rich over the last few years, can we afford to stay?"

‘Veil of Secrecy’

Watkins went on to complain about a "veil of secrecy" surrounding the so-called special-purpose entities in which Enron masked hundreds of millions of dollars of debt and investment losses.

Watkins added that company officials "consistently and constantly" complained about the firm's financial practices.

"I am incredibly nervous that we will implode in a wave of accounting scandals," wrote Watkins, who noted: "We are under too much scrutiny and there are probably one or two disgruntled 'redeployed' employees who know enough about the 'funny' accounting to get us in trouble."

In October, the energy giant announced a third-quarter loss of $638 million, and added that its value was a staggering $1.2 billion less than it had previously reported. After additional bottom-line revisions in November, the company filed the biggest bankruptcy petition in U.S. history on Dec. 2.

"I thought he should know the facts and look into them," Watkins told ABCNEWS this afternoon, when asked why she sent the letter to Lay. She said the CEO's reaction was one of "concern, surprise, and he assured me he would look into it."

In response to Watkins' concerns, Lay asked Enron's law firm, Vinson & Elkins, to investigate the matter. But Enron also asked its lawyers to refrain from "second-guessing the accounting advice and treatment" given by Arthur Andersen.