More than one Enron official warned company about growing crisis

No less than 10 congressional committees are investigating the collapse of Enron, an energy trading company with close ties to politicians in general and the Bush administration in particular. On Wednesday the Senate Finance Committee joined the ranks of nine other House and Senate bodies -- as well as the Departments of Labor and Justice, the Securities and Exchange Commission and the Internal Revenue Service -- by announcing that it, too, would look into the largest bankruptcy in American history.

On Wednesday, investigators with the House Energy & Commerce Committee interviewed David Duncan, the former Enron auditor with Arthur Andersen who had been fired the day before.

One of the primary questions under investigation is why Fastow and other Enron executives were permitted to establish complex and secretive partnerships with odd, obscure names -- LJM1, LJM2, JEDI, Chewco, the Raptor entities, Osprey, Big Doe -- that allegedly reaped these partners windfall profits while hiding Enron debt. In November, Enron had to revise its finance statements for the past four and a half years, acknowledging that the company was $600 million in net income poorer than it had led the government and its investors to believe. The Houston company also had to acknowledge an additional $2.5 billion in debt -- much of which came from these murky "partnerships." Recent revelations tied to the Watkins memo may result in billions more debt added to the Enron ledger.

"Someone should have stepped up and said, 'No, you can't do these sort of things!'" said a knowledgeable former Enron employee. But for too long no one did, the employee added. And then when someone finally spoke up, it was too late.

Currently, much is being made in the media of Watkins' August letter to CEO Kenneth Lay, released on Tuesday by investigators with the House Energy and Commerce Committee. "I am incredibly nervous that we will implode in a wave of accounting scandals," Watkins wrote. "The business world will consider the past successes as nothing but an elaborate accounting hoax."

But Watkins' letter, said one source, was not the only alarm being sounded within the company before it imploded. In addition to the flags raised by Watkins and Mintz, then-treasurer Jeff McMahon also aired his own growing concern. In her memo, Watkins alluded to McMahon's tribulation, writing that he "was highly vexed over the inherent conflicts of [the] LJM [partnership]. He complained mightily to [chief executive] Jeff Skilling and laid out five steps he thought should be taken if he was to remain as treasurer. Three days later, Skilling offered him the CEO spot at Enron Industrial Markets and never addressed the five steps with him."

In the eyes of many Enron executives at the time, McMahon's new assignment was meant to silence him. McMahon "learned about these partnerships and he thought they were wrong," said a knowledgeable former Enron employee. "He thought they were a huge conflict of interest." McMahon, according to this source, went to Skilling and said, "'We have this problem, and I think there's a conflict.' Skilling says, 'I'll take a look at it; I'll take care of it.' And the next thing you know, he's reassigned. And it was not a promotion." To other executives it looked like retaliation against a whistleblower, an Enron source said.

McMahon "did go to Jeff Skilling and tell him he was uncomfortable with the internal and external conflicts the LJM partnerships were creating," confirmed Enron spokesman Palmer. "And he told him he could no longer serve as treasurer with those conflicts in place." As for whether the reassignment was a demotion of any sort, Palmer said, "It's probably open to interpretation by a lot of people."

In August, the same month Watkins wrote her memo, Skilling himself resigned from Enron under mysterious circumstances. McMahon, who replaced Fastow as Enron's chief financial officer in October, did not return a call for comment.

"We hope in the very near future to be interviewing Mr. McMahon," House Energy & Commerce Committee spokesman Johnson said. "We feel he has a lot to offer." Johnson's committee has uncovered a number of incriminating details in the Enron investigation, including the shredding of documents and the Watkins memo.

A congressional source also reports that such matters may be just the tip of the iceberg, that much more damaging information will be coming out in the next few weeks dealing with the Enron partnerships.

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