Enron Whistleblower Alerted Andersen Too
Jan. 16, 2002 -- The Enron employee whose August letter to CEO Kenneth Lay warned of potential "accounting scandals" at the energy company also disclosed her concerns to officials at accountant Arthur Andersen at the same time, ABCNEWS has learned.
On Aug. 20, two days before Sherron Watkins met with Lay face-to-face to warn him about suspected financial irregularities at the now-collapsed energy trader, she called a friend in senior management at Arthur Andersen's Houston office and discussed her concerns.
A meeting of Andersen's top Houston-based officials followed, according to congressional officials looking into the matter. The meeting included David B. Duncan, Andersen's chief auditor for Enron, who was very publicly fired by Andersen on Tuesday.
A resulting Andersen memo described Watkins' concerns as serious, but the accounting firm did not take immediate action.
Fired Accountant Talks on Capitol Hill
For his part, Duncan, a day after being fired, told congressional investigators his side of the story today.
Duncan was dismissed by Andersen after it was discovered that thousands of documents pertaining to the collapse of Enron had been shredded and destroyed last fall by workers reporting to him.
This afternoon, Duncan was interviewed by investigators on the staff of the House Energy and Commerce Committee, which has taken an increasingly prominent role among the half-dozen congressional panels looking into the Enron affair.
Some congressional sources described Duncan as cooperative and said he did not ask for immunity from prosecution. But the Democratic spokesman for the committee said investigators "were disappointed by the limited nature of Mr. Duncan's memory," adding, "we expect documents and other witnesses to fill in the blanks."
Before today's session on Capitol Hill, Duncan's legal representatives released a statement on his behalf today saying, "Mr. Duncan is continuing to cooperate with all investigations of this matter and he looks forward to full disclosure of the truth."
Thousands of Destroyed Documents
On Tuesday, Andersen released a statement asserting that Duncan, who led the firm's group of Houston-based accountants working on Enron's finances, had overseen "the deletion of thousands of e-mails and the rushed disposal of large numbers of paper documents," starting last October.
The unusual destruction of the documents, first acknowledged by Andersen on Jan. 10, apparently started soon after Enron's Oct. 16 announcement of a $638 million third-quarter loss. At the same time, Enron said its value was a staggering $1.2 billion less than it had previously reported in publicly filed financial documents.
Andersen, as Enron's accountant, was responsible for approving the financial statements.
According to the company's statement, the Securities and Exchange Commission sent a subpoena to the company concerning the Enron case on Nov. 8, and the next day, Duncan's assistant sent an e-mail to co-workers asking them to "stop the shredding."
In correcting its financial statements, Enron acknowledged that it had been using off-the-books investment vehicles to mask large amounts of debt and trading losses. On Dec. 2, Enron filed the biggest bankruptcy petition in U.S. history.
Whistle-Blower Predicted 'Accounting Scandals'
Duncan's dismissal and testimony comes after the internal Enron letter from Watkins in August, warning of potential "accounting scandals," was released Monday by the House Energy and Commerce Committee.
Watkins' memo expressed concern that the energy trading company "will implode in a wave of accounting scandals" and raised further questions about Lay's knowledge of his company's inner workings.
Read the Letter from Sherron Watkins to Kenneth Lay
"I thought he should know the facts and look into them," Watkins told ABCNEWS Tuesday 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."
Watkins, a vice president of corporate development, 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?" She added that company officials "consistently and constantly" complained about some of Enron's practices to former Enron CEO Jeffrey Skilling, who was replaced by Lay in August.
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.
Enron and the Energy Task Force
Among the other ramifications of Enron's collapse, thousands of company employees lost a large portion of their savings because the company's 401(k) plan relied so heavily on Enron stock.
Additionally, the White House has been the subject of intense scrutiny in the last week after disclosing a variety of contacts between Lay and other Enron executives and members of the Bush administration. There is no indication that administration officials are a target of the ongoing federal investigations.
Nonetheless, Rep. Henry Waxman, D-Calif., a persistent administration critic, released an analysis today of links between Enron and the Bush administration's energy plan, released with fanfare last May.
Earlier this month, Vice President Dick Cheney, head of the energy task force, acknowledged he met with Lay in April to discuss energy policy. It was one of six meetings task force members had with Enron officials in 2001.
Waxman's analysis noted that "the policies of the White House Energy Plan" do not solely benefit Enron, but charged the company received "special access," and claimed that two of the provisions in the plan specifically benefit Enron's energy trading business.
ABCNEWS' Ariane DeVogue, Peter Dizikes, Linda Douglass and David L. Herndon contributed to this report.