Associated Press Enron Corp. executive Sherron Watkins testifies on Capitol Hill yesterday before the House Energy and Commerce subcommittee hearing on Enron. Watkins accused two top company officials of duping then-Chairman Kenneth Lay and the board of directors about improper, and possibly illegal, partnerships that concealed over $1 billion in debt.

WASHINGTON - Enron Corp. executive Sherron Watkins accused two top company officials yesterday of duping then-Chairman Kenneth Lay and the board of directors about improper - and possibly illegal - partnerships that concealed over $1 billion in debt.

Watkins said that when she told Lay of her concerns, the chief financial officer, Andrew Fastow, wanted her fired and her computer seized.

Chief Executive Officer Jeffrey Skilling, Fastow and other executives "did dupe Ken Lay and the board," she testified at a hearing of the House Energy and Commerce investigative subcommittee.

"There were swindlers in the emperor's new clothes discussing the fine material that they were weaving," said Watkins. "And I think Mr. Skilling and Mr. Fastow are highly intimidating, very smart individuals and I think they intimidated a number of people into accepting" questionable structures for the partnerships.

Self-assured as she answered lawmakers' questions, Watkins spoke clearly and in detail and smiled when lawmakers praised her for sticking her neck out to the energy-trading company's top official.

Rep. John Dingell, D-Mich., called Watkins "an extraordinary and courageous woman" and a "bright spot" in a company where executives turned a blind eye to abuses.

Skilling's attorney, Bruce Hiler, disputed Watkins' statements. "Everything she said about my client is based either on hearsay, rumor or opinion," he said. "She did not talk to my client. She has no basis in fact for her views."

Watkins testified she was told last summer by an Enron personnel executive that Fastow - chief architect of the complex partnerships that eventually brought the company down - wanted her to be terminated for taking her concerns to Lay.

"I was not comfortable confronting ... Mr. Fastow with my concerns," Watkins said. "To do so, I believed, would have been a job-terminating move."

Watkins also placed blame on Enron's auditor, Arthur Andersen - where she had worked for eight years before going to Enron - and Vinson & Elkins, a law firm representing Enron.

Asked whether she believed Andersen was culpable in Enron's collapse, she replied, "I think so because they're charged with auditing the results."

Watkins said she did not go to the Securities and Exchange Commission or other federal agencies with her concerns about Enron's financial practices because "(she) didn't want to hasten our demise."

She said Lay had asked her if she went outside the company with her concerns. When she said no, Lay asked her for time to investigate, Watkins testified.

She spoke as Enron announced from Houston that two top Enron executives at the center of the drama, accused of failing to help control the partnerships, were fired. Chief accounting officer Rick Causey was among those named by Watkins as mistakenly trusted by Lay "to manage the details." Chief risk officer Rick Buy also was dismissed.

Watkins said she told Lay in August that an entity involved with the partnerships, known as "Raptor," owed Enron more than $700 million and urged Lay "to find out who lost that money."

Watkins said she continued to ask questions and seek answers from colleagues who may have known about the complex partnerships. "I never heard reassuring explanations," she said.

And, she said, when it appeared that Fastow was being considered for promotion to chief executive, she decided to go directly to Lay in hopes that the financial improprieties would be corrected.

After meeting with Lay on Aug. 22 and spelling out her concerns in detail, Watkins said, "Mr. Lay assured me that he would look into my concerns."

However, in response, Lay only asked Vinson & Elkins to investigate, Watkins said.

"I was highly alarmed by the information I was receiving," Watkins said.

Watkins warned Lay and several other executives that the company was engaging in "outright manipulations of Enron's income statements, booking fictitious income and hiding actual losses," said Rep. Jim Greenwood, R-Pa., the subcommittee chairman.

Watkins appeared before Congress as a willing and knowledgeable witness following a parade of top Enron officials who have refused to answer questions. She testified under a "friendly subpoena" because she is still an Enron employee.

"Ms. Watkins took her concerns right to the top," said Greenwood. He said she is "a loyal company employee, who sought valiantly and sadly, in vain, to get the people in charge to face the facts and make the hard choices needed to save the company."

Watkins said she also spoke with others inside and outside the company, including Jeffrey McMahon, then the Enron treasurer; Associate General Counsel Rex Rogers; Cindy Olson, vice president for human resources; Arthur Andersen auditor James Hecker and outside company attorney Joe Dilg.

Watkins told Lay she worried about the fate of the company and her own career as word spread in Enron's glass tower in Houston about financial improprieties that ultimately pushed the huge energy trading company into the biggest bankruptcy in U.S. history on Dec. 2.

Members of the House panel want to know whether Watkins was brushed off after she alerted Lay and others that the company was mired in questionable accounting practices. Lay resigned Jan. 23.

She questioned Enron's complex web of partnerships, run by executives who profited hugely from them, that kept hundreds of millions of dollars in debt off the company's balance sheet and hidden from investors and federal regulators.

Watkins, 42, is a vice president for corporate development at Enron.

Months after her initial plea to Lay, when Enron was crumbling as she had predicted, Watkins again warned him. She told Lay on Oct. 30 that "we need to come clean" and disclose the heavy financial losses from the partnerships.