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'Nervous' employee warned Enron CEO

WASHINGTON (CNN) -- An Enron employee warned the company's top executive about potential accounting problems that look " to the layman on the street that we are hiding losses," congressional investigators said Monday.

"I am incredibly nervous that we will implode in a wave of accounting scandals," the unidentified employee predicted in a letter written to Enron chairman and CEO Kenneth L. Lay in August 2001.

The seven-page letter -- described by a congressional investigator as "breathtaking in detail" -- was one of thousands of documents turned over to the House Energy and Commerce Committee, which is investigating Enron's bankruptcy. (Full story)

It was written anonymously but the committee has since learned the woman who wrote it was with Enron's global finance division at the time. Committee investigators are attempting to interview her, said spokesman Ken Johnson.

Enron, which markets electricity and natural gas, delivers energy and other physical commodities, and provides financial and risk management services to customers around the world, filed for bankruptcy protection December 2 with $62.8 billion in assets.

It is the largest bankruptcy case in U.S. history, dwarfing Texaco's filing in 1987 when it had $35.9 billion in assets.

Many Enron employees had invested most of their 401(k) savings in company stock and lost their life savings when it went bust. Some charge they were defrauded because the company never revealed information about its deteriorating finances, even though top executives were unloading Enron stock.

William Lerach, an attorney for shareholders suing Enron, said 29 top executives and directors of the energy-trading company sold about $1.1 billion in stock during a time when "they have now admitted they were overstating the reported profits of Enron by $600 million and the stockholder equity of the company by $1.1 billion," he said.

"Now who do you think cooked these books? Some janitor or low-level employees?" Lerach asked during an interview with CNN.

"Let's be direct here. These books were cooked by Lay and the other top executives who put hundreds of millions of dollars in their pockets, while the employees of Enron were victimized and hundreds of thousands of other investors lost billions of dollars."

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Six Senate committees, two House committees and the Securities and Exchange Commission are probing various angles of the Enron debacle, and the Justice Department has launched a criminal investigation.

Attorney General John Ashcroft, a top aide and the U.S. attorney's office in Houston, Texas, withdrew last week from any connection to the Justice Department investigation, citing possible conflicts of interest. Enron is based in Houston.

Arthur Andersen, Enron's auditing firm, is also under scrutiny following its revelations that some employees destroyed documents related to Enron's financial status.

Time magazine reported the company circulated a memo ordering the destruction just days before the company went bankrupt. (TIME.com full story)

"If this memo is what it looks like, I'm afraid that the folks at Arthur Andersen could be on the other end of an indictment before this is over," Sen. Joseph Lieberman, D-Connecticut, said Sunday on CBS's "Face The Nation." (Full story)

Lieberman is the chairman of the Senate Governmental Affairs Committee, which plans to hold an Enron hearing next week.

In a statement released late Sunday, Andersen said it was "committed to getting the facts" following reports of an internal memo that allegedly called for the destruction of some Enron documents.

"We are moving deliberately and as quickly as possible to understand what happened," the statement said. "We acknowledge that there were internal communications that raise questions. Until we know more, it would inappropriate to comment further."

The statement noted the company has asked former U.S. Sen. John Danforth "to conduct an immediate and comprehensive review of the firm's records management policy.

Enron's financial troubles have also raised political questions because the Texas-based company has been a big supporter of President Bush's political career. The corporation and its executives have also given to Democratic candidates, but most of its campaign donations have gone to Republicans.

Lieberman said it was too early to make any conclusions about possible political fallout.

"I think we've got to be very careful here not to let the temperature rise too high about the Bush administration involvement at this point," Lieberman said Sunday.

"It is clear that we have a corporate scandal that occurred with Enron defrauding tens of thousands of average shareholders and pension funds from their live savings while the executives walked off with more than a billion dollars.

"So there is clearly a corporate scandal. Whether there is a government scandal it remains to be seen," Lieberman said.

Two Bush Cabinet officials Sunday defended their contacts with Lay and Enron.

Commerce Secretary Don Evans and Treasury Secretary Paul O'Neill received calls from Lay last fall as the once high-flying company was heading toward collapse. Both said they took no action as a result of the calls.

Evans said Lay told him in an October 29 phone call that the company's credit rating was being reviewed by Moody's, a rating service.

"[He] said to me he didn't know if there was any support that we could give them at Moody's, but, if there was, he would welcome that," Evans said on NBC's Meet The Press. "I listened to him and told him, 'Thank you very much.'"

Evans said he did not offer any assistance to Lay or to Enron, concluding that it would be "an egregious abuse for me to step in." He said he discussed the phone call with O'Neill, who concurred.

Several weeks later, as bad news about Enron's finances began to mount, Evans said he informed White House Chief of Staff Andrew Card about the phone call.

"With all the ongoing activity at Enron, I thought the White House ought to know," he said.

In an interview on Fox News Sunday, O'Neill said he had two phone calls from Lay, one in late October and another in early November.

In the first, Lay told him he wanted technical people in the Treasury Department to talk to people at Enron about the company's complex derivative contracts "to assure ourselves that their problems were not going to get translated into larger problems for the U.S. and the world capital markets."