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Enron CEO warned about 'wave of accounting scandals'

By Ted Barrett
CNN Washington Bureau

WASHINGTON (CNN) -- Months before Enron Corp. declared bankruptcy, an unidentified employee sent the company's top executive an unequivocal message.

"I am incredibly nervous that we will implode in a wave of accounting scandals," she wrote in a letter to Kenneth Lay, the corporation's chief executive officer.

Congressional investigators looking into the company's collapse revealed the letter's existence Monday. The letter, said one, is "breathtaking in detail."

The House Committee on Energy and Commerce, which is conducting the Enron investigation, released portions of the unnamed employee's seven-page letter to Lay. At the time, Lay had just been named Enron's chairman and chief executive officer when he received the warning.

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The letter is but one of thousands of documents turned over to the committee as part of its probe. Its author was with Enron's global finance division at the time, and committee investigators are attempting to interview her, said committee spokesman Ken Johnson.

The employee raised questions about the accounting treatment for three of Enron's subsidiaries -- Condor, Raptor and Whitewing. The company has been accused of using them as shell companies to enrich Enron executives while hiding the company's losses.

After Enron swapped stock with one subsidiary, its value dropped 98 percent, the employee wrote.

"It sure looks to the layman on the street that we are hiding losses in a related company and will compensate that company with Enron stock in the future," she wrote. "Is there a way our accounting gurus can unwind these deals now?"

In response, Lay met with the woman, who backed up her claims, the committee said. Lay also instructed the law firm Vinson & Elkins to investigate her allegations to see if they "raised new factual information that would warrant a broader investigation," according to the committee.

The firm interviewed David Duncan, who was Arthur Andersen Accounting's partner-in-charge of the Enron account. The law firm concluded the review "raised no new facts that had not either been known or disclosed by company officials and auditors," the committee said.

However, the review did caution Enron executives about the "serious risk of adverse publicity and litigation" arising from the employee's allegations.

Committee investigators are poring over the thousands of pages of Enron documents they have already received, and Monday asked for documents that might support the woman's allegations.




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